Christmas in July: Federal Gift Tax

Posted on Jul 28, 2014 in Estate Planning, Taxes | Comments Off on Christmas in July: Federal Gift Tax

The Federal Gift Tax and You

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What is the gift tax? Do I owe a gift tax? Do I need to report all gifts to the IRS?

There are certain amounts and ways to give gifts tax free to your descendants and friends both during your life and through a properly arranged Estate Plan. What’s important is to learn the rules, set up a clear Estate Plan with Gary  (858-549-8600) and make sure your loved ones and finances are all squared away.

What is the federal gift tax?

The gift tax is a federal tax that applies to all the gifts you make in a lifetime. Lucky for most, unless you live in Connecticut or Minnesota, you only have the federal tax to worry about. The tax is paid by the giver and reported on IRS FORM 709.

Do I Owe Gift Tax?

Gifts under $14,000 to a single person in the course of a year are exempt. Married couples can combine their exemption amounts and give up to $28,000 to any one individual in a year and retain the exemption. So, if you don’t give  gifts totaling $14,000 in a single year to one individual- you’re in the clear! No federal gift tax. If you do- see the next sections and be sure to report it!

Some other exemptions include any amount given in the following ways:

 

  • Charitable gifts.
  • Gifts to a spouse who is a US Citizen ($145,000 limit for non-US citizen spouses)
  • Gifts to a political organization for its use.
  • Gifts of educational expenses. These are unlimited as long as you make a direct payment to the educational institution for tuition only. Books, supplies and living expenses do not qualify.
  • Gifts of medical expenses. These, too, are unlimited as long as they are paid directly to the medical facility.

Here’s the tricky part: As of 2104 each person has a $5,340,000 gift tax exemption- you can give up to $5,340,000 in gifts in your lifetime, and still be exempt from paying the gift tax. Beyond that you hit the 40% taxation mark.

Another fun note, the gift giver always pays the gift tax so recipients don’t need to worry about this kind of tax, you may however be responsible for some other taxes later (call Attorney Gary on this one 858-549-8600).

Do I need to Report ALL Gifts to the IRS?

Lucky for you, that sweet sweater you got for Grandma at the mall last Christmas doesn’t have to be reported. Well, unless its super fancy. Gifts under $14,000 to one person are exempt and do not need to be reported on a Form 709. So, if you give your daughter $140,000 for a down payment on a home, $14,000 is exempt but $100,000 is taxable and must be reported with your annual tax return. You will not necessarily have to pay anything in that year, however, because, for 2014, you have your $53,400,000* lifetime exemption. *This value changes each year accounting for inflation* That would mean you’d still have $53,300,000 = $53,400,000-$100,000.


CALIFORNIA AND FEDERAL TAX INFORMATION CHANGES FREQUENTLY. THIS IS NOT A SUBSTITUTE FOR THE ADVISE OF A TAX PROFESSIONAL. FOR A FREE CONSULTATION ABOUT YOUR SITUATION PLEASE MAKE AN APPOINTMENT WITH OUR OFFICE TO TALK TO SAN DIEGO ESTATE PLANNING ATTORNEY AND TAX SPECIALIST GARY QUACKENBUSH 858-549-8600 or CLICK HERE TO REQUEST AN APPOINTMENT ONLINE.

 

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