Gifts

You can give away as much as $11,000 (for 2004) to any number of people without triggering the federal gift tax. The tax-free amount doubles to $22,000 if your spouse joins you in making the gift. You don't get a tax deduction for such gifts unless the object of your generosity is a qualified charitable organization. But there's an important advantage for those whose estates are (or will be) large enough to be subject to the estate tax: Assets given away during your life - and any future appreciation - won't be in your estate to be taxed after you die. And income generated by the gift is taxed to the new owner, not to you. (If you give assets to your own children, however, the income from those assets can be taxed at your tax rate until the children reach age 14.)

This issue is raised here, among possible year-end maneuvers, because if you're planning to make substantial gifts, you face a December 31 deadline. If you don't use your $11,000 annual exclusion by that date, you lose it. Each new year presents you with a new exclusion, but you can't reach back to benefit from a previous year's unused allowance.

Assume, for example, that a couple plans to give $40,000 to their son. If they give it all during one year, $22,000 of the gift would be sheltered from the gift tax, the other $18,000 subject to it. However, if half the gift was given in December and the other half in January, the full $40,000 would be protected. If you make the gift by check, be sure the recipient cashes the December check before the end of the year. Unlike the rules for itemized deductions - which allow a deduction for the year you give the check regardless of when it is cashed - when a gift is involved, it is considered given in the year the check is cashed.

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