There is a saying that encourages you to know where you have been to know where you are going. Or, as William Wordsworth more eloquently said “Life is divided into three terms – that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future”. To know what we want in our future experiences, we should know the cost associated with our prior experiences.
This resonated with me as I am slowly retiring and Lane, my husband, will be retiring in the future on his own terms. We have used a personal finance software product for most of our marriage to help us record our expenses and banking transactions. The software also includes budget planning and the ability to measure progress against it. We have loosely used that feature but know it is an excellent way to review prior expenses.
Lane and I have both shared the task of entering data over the years. We have categorized expenses differently. For example, I will categorize a gift to a child as “Gifts Given” and tag with a child’s name. Lane will categorize as “Missy (or one of the other three children) Gifts Given.” This is a problem when pulling a report because not all the gifts associated with a child are in one neat, concise report.
These reports matter. Deductions such as property taxes, medical expenses, charitable gifts and gifts given in general have potential tax considerations and a possible gift tax return filing requirement. Therefore, last month I sat down and re-categorized all the expense categories, including gift categories. Every expense is on the same playing field now, and the reports are more effective in showing us what has been important in our lives. (Too bad there is not a deduction for the clothing category, unless you donate them to charity.)
Another situation was Lane’s definition of a gift to a child. He thinks, being a CPA, I should input the child’s part of dinner as a gift when I take one out to dine. My definition is when we make a monetary Christmas gift to them. Those two definitions are miles apart, so we compromised on a minimal financial number that was worthy of being considered and recorded as a gift.
The annual federal gift tax exclusion for 2022 allows you to gift up to $16,000 to as many people as you wish without those gifts counting against your $12,060,000 lifetime exemption. There are other gifts that are exempt from the federal gift tax. Reviewing your total gifts made during the year can help determine if you are or are not required to file an additional tax return.
Analyzing and learning from our past experiences and expenses help us to profit in the present and live better in the future, as the aforementioned quote suggests. Organizing financial data gives us concise snapshots of past experiences; experiences that may continue, evolve or discontinue.
For more information about gifts and the tax repercussions contact a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNING™ professional.
Published in the Victoria Advocate
Phyllis Keller, MBA is the Information Security Officer for KMH Wealth Management, LLC and Keller & Associates CPAs, PLLC.