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March 23, 2016
Did you know you can give up to $14,000 to any person and any number of persons you want in a calendar year without making a taxable gift? No gift tax return is required. The recipient of the gift will owe no taxes on the gift and does not have to report the gift unless it comes from a foreign source.
You can also make unlimited gifts for medical or educational expenses so long as you make the payments directly to the medical providers or educational institutions on behalf of others without incurring a taxable gift. Again, no gift tax return is required.
If you are married and you split the gift with your spouse you can, together, give up to $28,000 in gifts.
If you split your gift with your spouse you will always have to report the gift on Form 709 even if the gift is not over $28,000.
However, if your gift to any one individual exceeds $14,000 in the year you will be required to report the gift on a Gift Tax Return, IRS Form 709. The amount of a gift that exceeds $14,000 becomes a taxable gift. For taxable gifts, each person has an aggregate lifetime exemption amount ($5.45 million in 2016) before any gift tax is due. In other words, you can give up to a lifetime total of $5.45 million during your lifetime, over and about the annual $14,000 exclusion and direct payments to medical providers and educational institutions on someone’s behalf, and still avoid paying a gift tax under current law even if you are required to file gift tax returns.
You may want to file a gift tax return even if the value of your gift to any person does not exceed $14,000 if you are gifting property that is not cash or marketable securities. Filing a return starts the statute of limitations running. The IRS will have only three years to challenge the value of the gift.
Utilizing the $14,000 annual gift exclusion is an excellent way to preserve your lifetime exemption and minimize your gift and estate taxes.
Please contact us if you have any questions about gift taxes and estate planning.