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The Easy Way to Avoid the Gift Tax

A financial gift can be a big help, but its important to know the tax impact. When does the gift tax apply, what is it, and who pays it?

GJM CPA Charlie Heid tackled the topic in his monthly appearance on WTOL Your Day. 

The gift tax is a tax on money or property that one living person gives to another. Probably the most important thing to know when it comes to the gift tax is the dollar figure $15,000. For 2019 that’s the annual exclusion amount… in other words that’s the amount of money you can gift to a single recipient without having to report the gift. If you stay at or below that threshold, you’re not required to file a gift tax form 709 to the IRS. If you go over that $15,000 you need to file a form and you’re eating into your annual lifetime exemption.

That annual exclusion is per recipient. So, say for example that you have three kids, and they are all buying their first homes this year, you could gift each one of them $15,000 to help with their down payments without incurring the gift tax or having to file the form.

The gift tax applies if you’re gifting to your children or any other family members or friends. But there’s an exception: your spouse.  

Here’s where the gift tax doesn’t apply:

  • A financial gift to your spouse
  • If you’re paying tuition or medical expenses directly to a hospital or school for another person
  • A gift to a political organization for its use
  • A gift to charity

The person who is doing the gifting is the one to assume the tax impact, if there is one. The recipient of the gift doesn’t owe any tax.

Good tax planning strategies can help you avoid paying the gift tax. First and foremost, don’t go over that $15,000 limit in gifting to any one person during the tax year.

If you’re married, you can essentially double the amount you can gift to $30,000 with no tax impact… because one $15,000 gift could come from you and another $15,000 gift could come from your spouse.

Another strategy is to spread the gift out over a couple of tax years. For example, if you want to give your daughter $25,000 at the holidays, you can do it in two separate checks… one in December for $15,000 and then another check after the New Year for $10,000 for a total of $25,000. That way the gifts will apply to different tax years. 

If you exceed the $15,000 limit in one tax year, you would have to file a gift tax return, or a Form 709 to the IRS, but more than likely you won’t have to pay any gift tax because we all have a lifetime exemption we can “eat into” before having to pay any tax. $11.4 million is the lifetime exemption for 2019. That’s the amount of value in money and property that each US citizen can give away during their lifetime. 

CPA Charlie Heid is a partner specializing in tax services who joined Gilmore Jasion Mahler in 2002. He serves clients across many industries, with a focus on manufacturing & distribution. Charlie appears monthly on WTOL-TV to discuss tax and money issues.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

Business & Succession Planning

You've worked hard to build your business, but there is a critical piece you can't ignore. What happens once you retire? Thinking you have an idea of how it will go isn't the same as coming up with an official strategic plan for the future. Experts say most business owners know how important it is to have a succession plan, but few actually have one in place. Gilmore Jasion Mahler partner Deanna Hall says she is having this important discussion right now with many of her clients.

 

Deanna Hall is a tax partner with Gilmore Jasion Mahler who advises many businesses on tax strategy and other critical business decisions. Her area of specialty is manufacturing & distribution.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm's professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

Tim Schloz Joins GJM Team

Tim Schloz Gilmore Jasion MahlerGilmore Jasion Mahler recently welcomed a new member to the team. Well, he’s not exactly new as you’ll see when you read this Q&A with GJM’s Tim Schloz.

What is your title? Risk Advisory Manager

Describe your role at GJM: My role consists of helping clients in the areas of information technology (IT), enterprise resource planning (ERP) system implementations, business process and IT process designs, and internal controls over financial reporting.

When did you start at GJM? March 25th was my first day back at GJM!

Anything you’d like to share about your past professional experience? I worked nearly four years at a large public accounting firm serving clients in the IT audit and business process control testing space. I spent a lot of my time serving publicly traded companies helping them understand and optimize their IT and business process risk profile through numerous audits, and post and pre-implementation assessments. In college I had three internships with GJM in the tax department.

Why did you choose the accounting industry? Accounting is the language of business. I learned and found it very important early on that in order for a business to be successful, one must understand the ins and outs of accounting. After taking a few classes in high school and college I found accounting to be a great fit along with information systems. The two majors really complemented each other as we are truly experiencing an innovative time in the accounting world! 

Why did you specifically decide that GJM was a good fit for you? After completing my first internship with GJM, I really got a great sense of the culture, fun, and family atmosphere. I knew one way or another I would make my way back to GJM. With a growing risk advisory practice and a great team, I knew GJM was now the perfect fit for me.

Are you from the Toledo area originally? If not, where are you from? Born and raised in the Toledo area.

What do you like about living in Northwest Ohio? Northwest Ohio is really a unique place. Its big enough to suit all your needs and wants, but then small enough to get to know the community. There has been a revitalization in the area the past few years which is really exciting to watch and take part in. I also have several family members in the area and really find the area appealing and a great place to call home.

Where did you go to school? University of Toledo

Would you like to share any info on family, pets, etc.? I have two cats, Behr and Boston! They are brothers and really have two different, unique personalities.

How do you like to spend your free time? I enjoy the outdoors, whether its running, biking, playing golf, basketball, volleyball and occasionally swimming.

Are you involved in any community organizations, do any volunteer work? Is there a particular cause you feel strongly about? If so, why? I have recently been active with the United Way, Salvation Army, and Junior Achievement. I am looking to join a nonprofit board in the near future.

Favorite song or music? I am all over the place with music, but I enjoy a mix of current pop, country and techno.

Favorite book or movie? “How to Win Friends and Influence People” - Dale Carnegie

What is something people may be surprised to find out about you? Born and raised in Toledo, but a passionate Chicago Cubs fan. Go Cubs go!

Get More Out of Your Health Savings Account

Health Savings AccountMillions of Americans use a health savings account, or HSA, to save for medical costs. But, are you getting the most out of your HSA? Gilmore Jasion Mahler CPA Charlie Heid recently tackled the topic in his monthly appearance on WTOL-TV.

The HSA or health savings account is a way to save money for medical expenses for people who have health coverage through a high deductible health plan.

You can pay for things like:

  • Doctor’s visits & copays
  • Surgery
  • Dental work
  • Flu shots

Unlike a flexible spending account, or FSA, which some people may get confused with an HSA, the HSA balance rolls over from year to year, and if you change jobs you can take your HSA with you.

Health savings accounts are referred to as a triple-tax free way to save… and here’s what that means:

  1. Your money goes into the account before its taxed
  2. It grows in the account tax deferred
  3. You can withdraw the money tax-free to pay for medical expenses

But there’s another benefit of the HSA that many people may not be aware of: when you turn 65 the HSA works like a traditional IRA. At 65 and older you can take money out and use it for whatever you want (not just medical expenses), though you would have to pay taxes on it when you do. But, you can still use that money tax-free for medical expenses in retirement.

There are some limits to what you can put into an HSA on an annual basis. They’ve actually gone up a bit in 2019 from 2018. A single person can put in up to $3,500 a year and a family can put in up to $7,000 per year.

If you’re 55 or older you can put in an extra $1,000 as a so-called catch-up contribution. That’s to help people who are nearing retirement age who feel they haven’t saved enough.

HSAs can be a powerful tool in saving for retirement. They can actually be invested in mutual funds to grow even further. If you do automatic payroll deduction for your HSA, unlike your 401(k) or IRA, that money isn’t subject to a federal income tax known as FICA, or the Federal Insurance Contributions Act, which goes toward Social Security and Medicare.

If you invest your HSA balance, be aware that some organizations can charge pretty big fees and some also have a required minimum balance before you’re allowed to invest.  

Some other things to keep in mind:

  • If you do invest your HSA, be sure to consult an expert so that you invest wisely
  • You can change the amount of your HSA contribution whenever you want, as long as you don’t go over the annual contribution limit
  • You need to keep receipts so that, if need be, you can prove that the medical expenses meet IRS requirements
  • Finally, other people can contribute to your health savings account. You can contribute separately from your payroll deduction. Your employer, family members or anyone else can also contribute as long as you stay below the annual contribution limit

CPA Charlie Heid is a partner specializing in tax services. He has been with Gilmore Jasion Mahler for 17 years and appears monthly on WTOL 11 Your Day to cover tax and money topics.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.  

Want a Bigger Tax Refund Next Year? Do This.

If you were caught off guard by a smaller tax refund this year… we’re here to help make sure that doesn’t happen again next year.

Gilmore Jasion Mahler CPA Charlie Heid appears monthly on WTOL-TV in Toledo, tackling various tax and money issues… and in his March, 2019 appearance he spelled out what you need to do, and it’s really quite simple. He says you need to update your W-4. You remember that form, right? The one we all fill out when we start a job… then totally forget about it?  

We fill out a W-4 so that our employers withhold the right amount of federal income tax. Ask for a copy of your W-4 at work to confirm your current withholding.

If you saw a decrease in your tax refund this year, Charlie says you likely need to decrease your allowances, in other words, have more tax taken out of your pay so you have a bigger refund come April 15th of 2020.

A quick reminder that the reason that we saw this change this year with smaller refunds was due to tax reform. Less money was taken out of your check in 2018, so you may recall that you got that bump in your paycheck, but now you’re seeing that translate to a smaller refund.

Here are some examples of how you can adjust your W-4 moving forward.

Example 1: Single person, no children whose refund was smaller than they’d like.

 

That single person would typically enter one (1) allowance (line A on the W-4 worksheet above) for him or herself and one allowance (line D) for a total of two allowances. Now, if that person wants a bigger refund, Charlie suggests they try claiming only one allowance and see what that does to their paycheck… or they could claim zero. He says the important thing to remember is the less allowances that you have on your W-4, the more money that’s withheld from your check and the more you’ll get back come April 15.

Example 2: Married man with one child, filing jointly and making $100,000 a year.

That man would typically enter one (1) on line A (of the W-4 worksheet) for himself. He would enter a one (1) on line B because he is married filing jointly. He would typically enter a four (4) on line E for that one child. That adds up to a total of six (6) allowances. But, if he wants a bigger refund than he got this year, Charlie says he would suggest reducing the number of allowances from 6 to perhaps 3 and see how that impacts his paycheck. 

Key points:

Want a bigger refund?

  • Need more money taken out of your check
  • Need to decrease number of allowances on W-4
  • That will result in more tax withheld from your check (and a bigger refund)

 The IRS has a withholding calculator to help you do a “paycheck checkup” and fill out your W-4.    

Charlie recommends that everyone revisit their W-4 at least once a year. He says you may also need to adjust your W-4 if you have a big life change such as:

  • Your spouse stops working
  • You get a divorce
  • You have a new baby

Any time you’d like to update your W-4, he says just request a copy from your employer, update it, and resubmit to your employer. You can find the W-4 here on the IRS website.

Charlie has one parting thought about adjusting your allowances to have a bigger refund: really, he says, your goal is to come as close to a wash as possible… where you don’t owe, and the government doesn’t owe you. That being said, many people don’t view it that way and want that big refund, so in that case, he says, don’t be afraid to tinker with your allowances. You can change your W-4 form as often as you want until you’re satisfied with the amount of money coming out of your check.

CPA Charlie Heid is a partner specializing in tax services. He has been with Gilmore Jasion Mahler for 17 years and appears monthly on WTOL 11 Your Day to cover tax and money topics.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.