Gift Tax Guidelines for Holiday Generosity

November 19, 2018

Cash gifts, personal property and payment of debts or expenses for another person are a wonderful way to be generous at the holidays if your financial situation allows. However, it’s best to consult with your tax advisor about the impact these gifts might have on the preparation of future tax returns.

Taxable gift amounts. Although there is no dollar limit on the amount you may give to another, there is a limit set for gifts’ annual exclusion ($15,000 for 2018). If more than $15,000 is given to any one recipient over the course of a year, the amount over the annual exclusion is considered a taxable gift.

The effects of making taxable gifts. Every donor exceeding the $15,000 limit must file a gift tax return (Form 709). However, donors with small estates can make gifts over the annual exclusion and typically pay no gift or estate tax. Donors who reach the gift tax exclusion over their lifetime ($11,180,000 for 2018) are likely to pay via an estate tax after the donor passes away. This is because taxable gifts are added to his or her taxable estate at death.

Timing of gift tax. A gift is not subject to tax until the gift is complete, and it is valued on the date completed. For example, gifts are complete when the check is paid by the donor’s bank, on the date the stock is transferred on the books of a corporation to the new owner or when the donor retains no power over property if a gift is made via an irrevocable trust. When forgiving a loan, the debt forgiveness is a gift at the time the loan is made if plans were prearranged to forgive the debt. If there were no prearranged plans, the lender makes a gift when the loan is forgiven.

Excluded gifts. Qualified transfers for tuition or medical expenses are excluded from gift tax. However, payments must be made directly from the donor to the school or care provider. If reimbursing the beneficiary or paying from a trust for tuition or medical expenses, the payments do not qualify.

One of the best aspects of accumulating wealth is the ability to richly bless friends and family with generous gifts. Talk to your tax advisor about the possibility of gift tax and if it should alter your plans this holiday season.

 

Blog by Erica Shaloy, Tax Director.

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