Gifts can help
reduce Estate and Income Taxes. By giving away
assets while you're alive, you can significantly trim the
value of your taxable estate. That's beneficial if you've
accumulated a fair amount of wealth. For more information click
here
Plan Ahead
to
Shape the
Future |
If you
want to help your grandchildren through college, there
are several options to help pay their expenses and trim
your family's tax bill at the same time. Here are three
tax-wise tips to get the maximum bang out of your
education buck:
|
 Write a check
| The tax law
lets you give $12,000 in cash a year for 2007 — or
$24,000 if your spouse contributes — without
having to pay a gift tax (up from $11,000 and $22,000
respectively for 2005). Just write out checks and
give them to your grandchildren. If the children still
have a few years before college, set up a custodial
account at a bank, mutual fund or brokerage firm. The
money can be used for tuition or other college-related
expenses.
|
Give
stock
| If you give appreciated stock or other
investments to your college-bound grandkids, your family
can slash the capital gains tax bill. Let's say
you're in the 33 percent tax bracket and you want to
sell stock you've owned two years to free up some cash
for tuition. For stock sold in 2005 or 2006, you'll wind
up paying a 15 percent capital gains tax rate on
the profit. But if you give the stock to your 18
year-old teenage grandson, he can sell the assets and
pay only 5 percent tax on the gain, assuming he’s
in the 10 or 15 percent tax brackets. This saves your
family a nice chunk of money that can be applied toward
college expenses.
(NOTE: According to theTax
Increase Prevention and Reconciliation Act signed
by President Bush in May 2006 the five percent capital
gains rate is effective through 2007. For 2008-2010, the
rate will drop to zero. The same preferential
treatment will also apply to qualified dividends
received through 2010.)
|
Pay tuition
yourself | Under current tax law,
unlimited tuition payments can be given directly to a
college with no gift-tax implications. The catch is the
money cannot pass through the hands of grandchildren (or
their parents) first. It must go directly from your
account to the university. This might be appealing if
you're worried about the youngsters spending it
frivolously.
This tax break applies only to tuition and can’t be
used to pay room, board and other college expenses.
However, you and your spouse can still each give the
child a tax-free cash gift of up to $12,000 in
2007 to cover those other expenses.
| | 
