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‘Tis better to give than to receive

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in Small Business Tax

The upcoming holiday season is the perfect time to give gifts of cash or other income-producing property to relatives in lower tax brackets. By handing over the loot, you reduce the size of your taxable estate. Plus, the family overall will save on income taxes in the future because earnings will be taxed at a lower rate.

Best of all, if you’re careful, you can avoid any gift tax liability. Use these two tax tips at the end of the year.

Tip No. 1: Stay within the limits for the annual gift tax exclusion. For 2007, you can give each recipient up to $12,000 completely free of gift tax. The exclusion doubles to $24,000 per recipient for joints gifts made by a married couple.

Tip No. 2: Pay college expenses and medical expenses on behalf of your dependent. Reason:  These transfers are exempt from gift tax above and beyond the amounts covered by the annual gift tax exclusion. But the payments must go directly from you to the educational institution or medical care provider.

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