“What taxes will be owed if you gift money to family?”
Questions often come up when gifting to children. What are the consequences to the giver and to the recipient? An article from nj.com, “Gift tax consequences for you and your heirs,” begins with the big picture, then looks at the annual gifting amounts and what it means for your taxes and for those of your children.
The IRS considers a gift to be any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) isn’t received in return. However, there are exceptions to this rule. Generally, the following gifts are not taxable:
- Gifts that aren’t more than the annual exclusion for the calendar year;
- Tuition or medical expenses you pay for someone (the educational and medical exclusions);
- Gifts to your spouse;
- Gifts to a political organization for its use; and
- Gifts to qualifying charities are deductible from the value of the gift(s) made.
The federal estate and gift tax exemption is $5.49 million per person this year, which means that a person can leave and/or gift a total of $5.49 million to their heirs without paying federal estate or gift tax. The cutoff will typically increase with inflation each year. Accordingly, the amount will be $5.6 million beginning on January 1, 2018.
There is a federal annual gift tax exclusion amount that doesn't count toward the lifetime gift exemption. That annual gift tax exclusion amount is $14,000, and has been so since 2013. As a result, a person can give away $14,000 to as many people as he or she would like without a tax issue. Note: That amount is increasing to $15,000, beginning on January 1, 2018. There’s no gift tax return to be filed, if the annual gifts total $14,000 or less to each individual done.
For gifts over $14,000 to a single individual in a given tax year, the giver must file a gift tax return. However, this does NOT mean that a gift tax is due unless a gift is in excess of the federal exclusion amount (i.e. $5,4900,000) is being given away. Rather, the overage is simly deducted from the federal exclusion amount. Therefore, if one were to give $114,000 to an individual in 2017, a gift tax return would be filed and one would only have $5,390,000 left to give away either during life or after death. For most of us, this is not an issue.
If you have questions or are unsure of the current law and how it would impact you, speak to an experienced estate planning attorney.
Reference: nj.com (October 5, 2017) “Gift tax consequences for you and your heirs”