There’s no way to paint a rosy picture about the recent nosedive in the stock market. But at least you can find a silver tax lining if you own a small business where the stock has declined in value.
Strategy: Give gifts of stock to family members such as children and grandchildren. Because the stock’s value is lower than before, you can give away a bigger part of your company without paying any gift tax. At the same time, you reduce the size of your taxable estate.
The IRS just announced that the annual gift-tax exclusion has been increased from $12,000 per recipient to $13,000 for 2009. (The exclusion doubles for joint gifts by a married couple.) So you can shift even more stock to your children in the coming years.
Example: Let’s say you have three adult children and seven grandchildren. You and your spouse are the sole owners of a company you started 25 years ago. The ownership is represented by 50,000 shares of stock.
At the beginning of the year, the stock was valued at $70 a share, but now its value is $50 a share.
If you give each of the 10 family members 240 shares of stock at the end of December, you owe no gift tax. Reason: The total value of $12,000 (240 x $50) being transferred to each recipient is sheltered by the gift-tax exclusion. Your spouse can do the same thing. Then you both can give each family member 260 shares of stock gift-tax free in early January when the annual gift-tax exclusion rises to $13,000.
This means that you and your spouse can each transfer a total of 500 shares valued at $25,000 to 10 different recipients. In just two months—perhaps within a matter of weeks—you and your spouse will have reduced each of your estates by $250,000 without paying a penny of gift tax. The same gifting strategy can be continued in subsequent years.
- Small Business Tax Deduction Strategies No matches