Everyone loves giving gifts,
but depending on the value of the gift, you may have to make one to Uncle Sam
as well.
Federal law requires every person who makes a gift of cash
or property to another person (except their spouse) to file a gift
tax return and pay taxes if the value of the gift is more than the gift tax
annual
exclusion. Gift taxes are paid by the donor of the gift, not the recipient.
In 2015, the annual gift tax exclusion amount is $14,000,
although it increases every year. Gift taxes are calculated on the portion of
the gift that exceeds the annual exclusion; in 2015, the gift tax rate is 40%. Gifts
are also cumulative, meaning it is the total amount of all gifts made to a
single person each year, and not the individual value of each gift.
So if in one calendar year you make one gift of $20,000, or
four gifts of $5,000 each, to the same person, you must file a gift tax return.
The tax will be calculated on $6,000, the difference between the $20,000 gift
and the $14,000 annual exclusion.
There are certain exceptions to the gift tax requirement. No
gift tax return is required, and no taxes will be incurred, if the gift was
made to benefit any of the following:
- Spouse. The marital exclusion only applies to couples who are legally married; couples in domestic partnerships do not benefit from the exclusion. With the Repeal of DOMA, this is one more reason to consider marriage.
- Education or medical institutions. Payment for someone’s education or medical expenses are not subject to gift tax, provided the payments are made directly to the educational institution or medical provider. So if you are paying for your son’s or granddaughter’s college education, make sure the payments are made directly to the college, not to your son.
- Charitable donations. The recipient must be a recognized by the IRS as a qualified charitable organization.
- Political contributions. The recipient must be a recognized political candidate or organization (keeping in mind state and federal election finance rules).
If you make a gift that triggers the gift tax, you have two
options. The first is to file a gift tax return in the year the gift is made
and pay taxes.
The more popular option is to apply the gift toward your
lifetime estate tax exemption, which is currently $5.43 million (remember, the
amount applied toward the exemption is the amount that exceeds the $14,000, or
the then applicable, annual exclusion). This then reduces your available estate
tax exemption, which is the amount of money each person can pass onto heirs or
beneficiaries, tax-free, at his or her death. When you die, if the total value
of your estate is less than the estate tax exemption amount, as adjusted, (which
it is for the vast majority of people), the end result is a tax-free gift to
beneficiaries.
If you
filed taxes in CA, NV, OR or Washington states and are (or were after 2010) Registered
Domestic Partners, try our calculator to see if you may be eligible for an IRS
refund http://www.lgbt.tax/Calculator
