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Article Highlights: Educational Gifts: A Gift for the Present A Gift for the Future Retirement Contributions: A Gift with Long-Term Benefits Gifts to Spouses: Supporting Self-Employment Employee Gifts: Navigating Tax Implications Working Children Gift Understanding the Annual Gift Tax Exclusion Summary The holiday season is a time of giving, and while the joy of gifting is often its own reward, there are ways to make your generosity even more impactful through strategic tax planning. By understanding the tax implications of certain gifts, you can maximize the benefits for both the giver and the recipient. This article explores various holiday gifts that come with tax advantages, including educational gifts, gifts to spouses, employee gifts, and contributions to retirement accounts. Educational Gifts: - A Gift for the Present - One of the most meaningful gifts a grandparent can give is the gift of education. Paying a grandchild's college tuition directly to the institution not only supports their educational journey but also provides significant tax benefits. According to IRS rules, such payments are exempt from gift tax and do not count against the annual gift tax exclusion. This means grandparents can pay tuition directly without worrying about gift tax implications. Moreover, this act of generosity can also benefit the child's parents. If the grandchild is claimed as a dependent, the parents may be eligible for education tax credits, such as the American Opportunity Tax Credit (AOTC). This credit can reduce the amount of tax owed by up to $2,500 per eligible student, providing a financial boost to the family. Thus, paying tuition can be seen as a dual gift: one to the grandchild in the form of education and another to the parents in the form of a tax credit. - A Gift for the Future - Donating to a Section 529 plan can be a thoughtful and practical holiday gift that combines the spirit of giving with valuable tax benefits. A 529 plan is a tax-advantaged savings account designed to encourage saving for future education expenses. Contributions to a 529 plan grow tax-deferred, and qualified withdrawals are tax-free when used for eligible education expenses, such as tuition, room and board, and other related costs. One of the most attractive aspects of gifting to a 529 plan is that contributions are considered completed gifts for tax purposes, which means they qualify for the annual gift tax exclusion. For the 2025 tax year, individuals can gift up to $19,000 per recipient ($38,000 for a married couple) without triggering gift taxes or reducing their lifetime gift and estate tax exemption. Additionally, the 529 plan offers a unique five-year election option that allows individuals to supercharge their gift by front-loading contributions. This option permits contributors to treat a contribution as if it were spread over five years for gift tax purposes, up to five times the annual exclusion amount. For instance, a single contributor could donate up to $95,000 in one year ($190,000 for a married couple) without incurring gift tax consequences, provided no additional gifts are made to the same beneficiary during the five-year period. This feature enables grandparents or other family members to make significant contributions to a child's education fund while effectively reducing their taxable estate, making it an excellent strategy for both holiday giving and long-term financial planning. Retirement Contributions: A Gift with Long-Term Benefits Providing the funds for someone to contribute to their retirement account, such as a traditional IRA, can be a gift that provides long-term benefits. For the gift recipient, contributions they make to a traditional IRA may be tax-deductible, reducing their taxable income for the year. This deduction can be particularly beneficial for individuals in higher tax brackets who aren’t covered by an employer’s retirement plan. The annual contribution limit for IRAs is subject to change, so it's important to check the current limits. For 2025, the limit is $7,000, or $8,000 for those aged 50 and over. By helping a loved one contribute to their traditional IRA, you are not only helping them save for retirement but also potentially providing them with immediate tax savings. Gifts to Spouses: Supporting Self-Employment Gifting items to a spouse that are used in their self-employment can be both a thoughtful gesture and a savvy tax move. For instance, if your spouse is self-employed and you gift them a new laptop or office equipment, these items can be deducted as business expenses on their tax return. This deduction reduces the taxable income from their business, potentially lowering their overall tax liability. It's important to ensure that the gifted items are indeed used for business purposes and that proper documentation is maintained. Receipts and records of business use should be kept substantiating the deduction in case of an audit. This strategy not only supports your spouse's business endeavors but also provides a financial benefit through tax savings. Working Children Gift: Contributing to a Roth IRA on behalf of working children or grandchildren can be a profoundly impactful holiday gift that is rich with future potential. Young earners often overlook retirement planning, preferring to spend their hard-earned money on immediate needs or desires rather than contributing to retirement accounts. By stepping in to make a Roth IRA contribution, you are not only teaching the importance of early saving but also providing a gift that grows with them. Contributions to a Roth IRA are made with after-tax dollars, allowing for tax-free growth and tax-free withdrawals in retirement, provided certain conditions are met. Even modest contributions, when given the advantage of time, can accumulate significantly thanks to the power of compound interest. For example, a $1,000 contribution made today for a young worker can potentially grow to tens of thousands of dollars by retirement age, depending on the rate of return. This simple gesture not only helps secure their financial future but also imparts a valuable lesson in financial planning, making it a cherished and enduring holiday gift. Employee Gifts: Navigating Tax Implications Many employers choose to show appreciation to their employees during the holiday season through gifts. However, it's crucial to understand the tax implications associated with different types of gifts. De Minimis Fringe Benefits: These are gifts of minimal value, such as holiday turkeys or small gift baskets, which are not subject to taxation for the employee. The employer can deduct the cost of these gifts as a business expense. Cash and Cash Equivalents: Gifts of cash, gift cards, or any item that can be easily converted to cash are considered taxable income for the employee. These must be reported as wages and are subject to payroll taxes. Employers should issue these gifts through payroll to ensure proper tax withholding. Non-Cash Gifts: Items that are not easily convertible to cash, such as a company-branded jacket, may not be taxable if they fall under the de minimis threshold. However, more valuable items may need to be reported as income. Employers should carefully consider the type of gifts they give to employees to ensure compliance with tax regulations while still expressing gratitude. Understanding the Annual Gift Tax Exclusion The annual gift tax exclusion is a key consideration when planning holiday gifts. For 2025, the exclusion amount is $19,000 per recipient. This means you can give up to $19,000 to any number of individuals without incurring gift tax or needing to file a gift tax return. Married couples can combine their exclusions to give up to $38,000 per recipient. Gifts that exceed the annual exclusion may require the filing of Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. These excess amounts also count against the lifetime gift and estate tax exemption, which is $13.99 million for 2025. By staying within the annual exclusion limits, you can make generous gifts without affecting your lifetime exemption or incurring additional tax obligations. Summary The holiday season offers a unique opportunity to give gifts that not only bring joy but also provide financial benefits through tax savings. Whether it's paying a grandchild's tuition, supporting a spouse's business, gifting employees, or contributing to a retirement account, understanding the tax implications can enhance the impact of your generosity. By strategically planning your holiday gifts, you can maximize the benefits for both you and the recipients, ensuring that your gifts continue to give long after the holiday season has passed. Always consult with a tax professional to ensure compliance with current tax laws and to tailor your gifting strategy to your specific financial situation. If you have questions, give this office a call.

If you could not complete your 2024 tax return by April 15, 2025, and are now on extension, that extension expires on October 15, 2025. Failure to file before the extension period runs out can subject you to late-filing penalties. There are no additional extensions (except in designated disaster areas), so if you still do not or will not have all the information needed to complete your return by the extended due date, please call this office so that we can explore your options for meeting your October 15 filing deadline. If you are waiting for a K-1 from a partnership, S-corporation, or fiduciary (trust) return, the extended deadline for those returns is September 15 (September 30 for fiduciary returns). So, you should probably make inquiries if you have not yet received that information. Late-filed individual federal returns are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. If you are required to file a state return and do not do so, the state will also charge a late-file penalty. The filing extension deadline for individual returns is also October 15 for most states. In addition, interest continues to accrue on any balance due, currently at the rate of just over .5% per month. If this office is waiting for some missing information to complete your return, we will need that information at least a week before the October 15 due date. Please call this office immediately if you anticipate complications related to providing the needed information, so that a course of action may be determined to avoid the potential penalties. Additional October 15, 2025, Deadlines – In addition to being the final deadline to timely file 2024 individual returns on extension, October 15 is also the deadline for the following actions: - FBAR Filings - Taxpayers with foreign financial accounts, the aggregate value of which exceeded $10,000 at any time during 2024, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The original due date for the 2024 report was April 15, 2025, but individuals have been granted an automatic extension to file until October 15, 2025. SEP-IRAs – October 15, 2025, is the deadline for a self-employed individual to set up and contribute to a SEP-IRA for 2024. The deadline for contributions to traditional and Roth IRAs for 2024 was April 15, 2025. Special Note – Disaster Victims – If you reside in a Presidentially declared disaster area, the IRS provides additional time to file various returns, make payments and contribute to IRAs. Check this website for disaster-related filing and paying postponements. Please call this office for extended due dates of other types of filings and payments and for extended filing dates in disaster areas. Please don’t procrastinate until the last week before the due date to file your extended returns. Final note: if for whatever reason you miss the October 15 deadline, you should still file your return as soon thereafter as possible. If you need a professional to assist you with your taxes or need tax information, get started with Steve Brewer CPA & Company.