What is gift splitting and how does it work
Gift splitting is a strategy that married couples can use to minimize their gift tax liability. Under the federal gift tax rules, each person is allowed to give up to $15,000 per year to an unlimited number of individuals without incurring any gift tax liability. However, any gifts above this amount are subject to a 40% tax. Married couples can take advantage of this by splitting their gifts, so that each spouse can give up to $15,000 per recipient. For example, if a couple wanted to give their child a $30,000 gift, they could split the gift so that each spouse would give $15,000. As long as they file the proper paperwork with the IRS, they would not have to pay any gift tax on the transaction.
Gift splitting can be an effective way to minimize gift taxes, but it is important to note that there are some limitations. First, both spouses must agree to split the gifts in order for it to be valid. Additionally, all gifts must be made on the same day and must be for the same recipient. Finally, it is worth noting that gift splitting only applies to federal gift taxes; some states also have their own gift taxes that may not be eligible for split gifting. Despite these limitations, gift splitting can be a useful tool for married couples who wish to reduce their overall tax liability.
Who can benefit from gift splitting
If you are an avid shopper, you know that feeling all too well. You see the perfect gift for your spouse, child, or best friend and just as you are about to purchase it, you remember that you have another family member or close friend who is also celebrating a birthday, holiday, or special occasion. Now you have to decide whether to buy two gifts or just one and split it between the two people. The answer may not be as clear cut as you think. In some cases, it may actually be beneficial to split a gift between two people. Here are some scenarios in which gift splitting can be advantageous:
You’re on a budget: If you are working with a limited budget, splitting a gift between two people can help you stay within your budget while still giving a meaningful gift.
You’re not sure what to get: If you are struggling to find the perfect gift for someone, splitting a gift with another person can provide them with something they will appreciate while also taking the pressure off of you to find that one perfect present.
You want to give an experience: Sometimes the best gifts are experiences rather than material objects. If you want to give someone an experience they will never forget, such as tickets to a concert or a voucher for a spa day, splitting the cost with another person can make it more affordable.
The pros and cons of gift splitting
Some people enjoy giving gifts that are unique to each person on their list, but others find it more efficient – and less expensive – to buy a single gift that can be split up and enjoyed by multiple people. There are pros and cons to both approach, and the best option depends on the situation.
On the plus side, gift splitting can be a great way to economize without looking cheap. If you have a large group of friends or family, it can be more cost effective to buy one nice gift that everyone can enjoy instead of a bunch of smaller, less expensive gifts. It can also be a good way to give a group of people a gift that they might not otherwise be able to afford on their own, such as tickets to a concert or show.
On the downside, splitting gifts can sometimes come across as Thoughtless. If you put little effort into choosing the gift or dividing it up evenly, it can send the message that you didn’t really care about giving a special present. In addition, some people may feel left out if they don’t receive an individualized gift. Ultimately, whether or not to split gifts is a personal decision that depends on the relationship between the giver and the receiver.