The first method of tax-free donation is the annual exclusion of gift tax. Take the time to meet with a tax and inheritance planning professional to ensure that your gift and estate plans are well thought out and implemented correctly. If you do not file a gift tax return, the IRS may question the valuation of the property at any time in the future. The person making the donation will file the gift tax return, if necessary, and will pay any taxes due.
The bad news is that you'll have to file a gift tax return, but the good news is that you probably won't pay a gift tax. However, if your daughter was 17 years old, support payments would be considered part of your legal obligation to support her and therefore would not be considered gifts. Upon receipt and verification (including comparing current taxpayer and taxpayer representative records with information on Form 4506-T filed), a copy of the original tax return will be mailed as requested. In other words, if you write a large check, give away investments, or give a car to someone other than your spouse or dependent, you have made a donation.
Once you donate more than the annual gift tax exclusion, you begin to consume your gift and estate tax exemption for life. You can get around the gift tax by contributing to someone's 529 college savings plan with a lump sum and then distributing it over five years for tax purposes. However, if you receive the property as a gift from you, your tax base is usually whatever your tax base is. For help with gift tax or any other personal finance issues you may have, consider working with a financial advisor.
However, you won't have to pay any taxes until you've reached the lifetime gift tax exemption. In general, cash and assets with poor appreciation are better for gifts, while highly prized assets are better to transfer as part of your estate. With the passage of the Tax Cuts and Jobs Act (TCJA), the exemption from gift and inheritance taxes has increased significantly. A special rule allows donors to distribute one-time gifts on five-year gift tax returns to preserve their lifetime gift exclusion.