Most people enjoy giving presents and watching people open them. Gifting is also an important tool used while preparing an estate plan, but some gifts may be taxable by the Internal Revenue Service.
Federal Gift Tax Explained
In 2017, individuals can give up to $14,000 per person to as many people as they want. Spouses could each give $14,000 per person. If you want to give your son or daughter the maximum annual gift, both parents could give $14,000 for a total of $28,000 to each child.
Gifts above $14,000 are taken from your lifetime exclusion amount, which is currently over $5 million. You only pay gift tax if you give more than the lifetime exclusion.
Property That Can Be Gifted
Almost anything can be considered a gift, including money and property. For the purposes of gifting, the IRS considers a gift: “Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”
For example, if you give your daughter $10,000 outright, that’s a gift. However, if you give her $10,000 in exchange for a car, that transaction will not be treated like a gift because you received something in return.
Assets Eligible For The Gift Tax Exclusion
Almost any present can be taxed under federal law, but there are exceptions:
- Gifts up to the annual exclusion limit;
- Gift used to pay tuition or medical expenses;
- Gifts to a spouse; and
- Gifts to political organization.
Gift-giving can be an effective way to reduce or eliminate estate taxes. In addition, the givers have the chance to see how much their gifts help their loved ones.
Ready To Explore Gifting?
At Keystone Law, we use our estate planning experience to help clients like you decide whether gifting works. Call us at (480) 418-8448 or check out some of our free seminars. We offer services for clients throughout Arizona, including Chandler, Gilbert, Sun Lakes, Tempe, Phoenix, Mesa, Scottsdale, and Apache Junction.