The end of the year is here, and it’s a critical time of year to re-plan your finances.
Many parents choose to make good use of the annual gift tax exemption of NT$2.44 million at this time as an important tool for transferring wealth to the next generation.
However, ignoring some key rules can result in unnecessary tax liability.
A recent case has attracted attention:
A parent donated RMB 2.44 million to each of his two children. Since each child did not exceed the annual tax exemption, no special declaration of gift tax was made.
After verification by the National Taxation Bureau, because the total amount of gifts exceeded 2.44 million yuan, the company was required to pay the excess gift tax of 10%, totaling 244,000 yuan.
What exactly is the problem?
The annual tax exemption limit for each "donor" is 2.44 million yuan. No matter how many people are gifted to, the cumulative total cannot exceed this limit; once it exceeds, you need to declare and pay tax based on the amount.
The key error in the above case is that the donor regarded RMB 2.44 million as the tax-free limit of "each recipient", ignoring that the actual calculation was based on the "total amount" of the donor.
This concept is very important, as a little carelessness may result in back taxes or even fines.
How to properly plan a gift?
3 tax-free secrets!
1. Donate in batches year by year
Spread the gifts over several years, and use the tax exemption limit of 2.44 million yuan each year to gradually transfer the property.
This can not only avoid the high tax burden caused by a large one-time gift, but also retain a certain amount of asset control.
For example, if there are two children in the family, each of them can be gifted 1.22 million yuan each year. The total amount just meets the tax exemption standard of 2.44 million yuan, and no declaration is required.
If both husband and wife are happy, it can be considered as having two quotas, that is, "244 x 2" for a total of 4.88 million yuan.
2. Make good use of the wedding gift quota
If their children are about to get married, in addition to the annual tax exemption of NT$2.44 million, parents can also make use of the additional NT$1 million tax exemption for "marriage gifts", so that they can make gifts of up to NT$3.44 million in one year.
If wedding gifts and planning are spread across years, the total tax exemption can be added up!
For example:
Donated 3.44 million yuan that year
Another 2.44 million yuan will be donated the next year
The total tax exemption for both parents is up to NT$11.76 million, which is a good time to transfer assets in one lump sum.
3. Use insurance tools skillfully
Buying insurance for your children within the tax-free limit can not only transfer property, but also increase the value of assets.
When planning insurance, you can set:
Parents are the insured
Children are sponsors and beneficiaries
When the insurance takes effect, the insured amount is much higher than the premium, and the assets can be enlarged.
In addition, these insurance premiums will not be included in inheritance tax in the future, which is particularly beneficial to high-asset families.
Many elders worry that the donated assets will be handed over to their children at once, and young people will suddenly get a lot of money, and then they will not manage finances well, and they will be tempted by the outside world for a while, and instantly lose all the good-intentioned gifts that their parents have saved their whole life.
To solve this problem, a trust structure can also be combined:
1. Parents first donate property to the trust
2. Set trust beneficiaries as children
3. The trust trustee is responsible for managing the property
In this way, the property nominally belongs to the children, but in fact it is still managed by the trust to avoid abuse, and the funds can be released in batches according to the parents' plan.
Or there are some insurances that have trust functions attached to them, which can help you directly avoid the trust appointment fee.
Gift and estate tax balance
In addition to paying attention to gift taxes, high-net-worth families also need to plan for inheritance taxes.
Taiwan’s inheritance tax rate can reach a maximum of 20%, which is much higher than the gift tax of 10%. By making annual gifts, you can not only reduce future estate tax burdens, but also provide flexibility in asset management.
If you need to transfer property in excess of the tax-free amount in one go, you can also consider paying gift tax directly.
Although you have to pay the tax amount of 10% first, it can avoid the pressure of high inheritance tax on your children in the future due to complete lack of planning.
3 Key Steps to Planning a Gift
1. Inventory assets
Know clearly what funds or assets you have available to ensure that your daily life will not be affected by gifts.
2. Set goals
Clarify the proportion and amount of assets allocated to each child, and consider future family needs.
3. Consulting professional
A financial expert or tax consultant can provide tailored advice to help you achieve the best results within the legal limits.
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The end of the year is a prime time to revisit your finances and taxes.
Mastering the annual gift tax exemption of 2.44 million yuan, combined with tools such as wedding gifts and insurance, can not only effectively reduce the tax burden, but also ensure the smooth inheritance of wealth.
At the same time, control of assets can be maintained through trusts and other means.
Instead of concentrating your inheritance on the final distribution, why not plan ahead and gradually realize the harmonious inheritance of family wealth?
# Gift tax # Inheritance tax # Insurance # Trust # Wedding # Assets # Government # Taxation # Tax exemption # Internal Revenue Service # Penalty # Hedging # Batch # Control # Transfer # Parents # 2.44 million # Tools # Inheritance # Year by year # Investment # Reward # Annuity # Life Insurance # Foreign Currency # Variable # Universal # Planning # Appointment # Declaration
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Hello, I was really shocked when I read the article. We just entered the stock market and didn’t know how to settle accounts, which led to insufficient balance in our bank account. Our parents lent us money and transferred it into our account, which resulted in exceeding the gift limit. Is there any way to pay back the money to our parents to solve this problem?
Go write a promissory note and have it notarized quickly, otherwise the financial transactions between relatives within the second degree of kinship can easily be considered as a gift.