How much money can you give tax free?

It's better to give than to receive when it comes to income taxes. Giving money lowers taxable income, thus lowering overall taxes. Despite a few rules, there's really no limit to how much money you can give. The Internal Revenue Service (IRS) taxes gifts over a certain amount per recipient but does not limit the number of recipients. In addition, although it restricts the percentage of income that can be given as tax-deductible donations to charity, it doesn't restrict the medical and educational expenses that can be paid on behalf of another person.

Gifts

The IRS assesses a gift tax on gifts over a certain threshold limit (£8,450 but subject to change). However, this limit only applies to gifts to a single person or entity. There are two ways to avoid the gift tax while giving unlimited amounts. First, as long as you don't give more than the £8,450 threshold to any single recipient, you will not pay any gift tax. Second, the number of recipients to which you can give is unrestricted, so give to as many different recipients as possible and, so long as you remain under the gift tax threshold, the gifts are tax free to the donor. Special considerations apply, however, if the recipient is a 501(c)(3) non-profit entity.

Charitable Donations

Unlike the gift tax, the restrictions on charitable donations are not based on the cumulative amount given to a recipient but to the percentage of total income of the giver. Individuals can only give up to 50 per cent of their gross annual income to tax deductible charities before the donations are no longer tax deductible. If the recipient is a private foundation, that limit is lowered to 30 per cent of gross income. Corporate donors are restricted to no more than 10 per cent of their gross income that can be deducted for donations to charity.

Direct Payments

Another way to give without any particular limits is by direct payments. A taxpayer can pay the medical or educational expenses of anyone else without incurring the gift tax if the payment is made directly to the institution. In other words, you can actually give far more than £8,450 to a single recipient if that money can go directly toward her education or medical expenses. And, on top of the direct payments for these expenses, you can still give that person up to the $13,000 tax-free gift.

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About the Author

Joseph Nicholson is an independent analyst whose publishing achievements include a cover feature for "Futures Magazine" and a recurring column in the monthly newsletter of a private mint. He received a Bachelor of Arts in English from the University of Florida and is currently attending law school in San Francisco.

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