In-Depth Articles
Present Tax Law Is a Gift
It is said that to give is better than to receive and under the current tax law, gifting is the way to go! For tax years 2011 and 2012 individuals have a $5 million lifetime gift exemption. This means you can currently gift up to $5 million during your lifetime without any gift tax implications. In addition, there are annual exclusions and gifting exceptions that allow you to transfer funds without filing gift tax returns.
Annual and Lifetime Exclusions
- For the calendar year 2011, any individual can give any other individuals up to $13,000 each without any gift tax implications. For 2012 and beyond, this amount may be adjusted for inflation.
- Consenting married couples may give up to $26,000 to an individual ($13,000 from each).
- For 2011 and 2012, each person may give up to $5 million during his or her lifetime before incurring any gift taxes. Unless Congress makes changes to the federal tax law, this exemption will drop to $1 million in 2013 and subsequent years.
- If your annual gift to an individual exceeds $13,000, the excess will be deducted from your lifetime exemption of $5 million. You will only owe gift taxes once your accumulated lifetime gifts exceed the lifetime exemption.
Exceptions
- Marital Gifts – U.S. spouses can give limitless amounts to each other without any gift tax consequences.
- Marital Gifts to non-U.S. spouses – For the calendar year 2011, a U.S. spouse can give a non-U.S. spouse up to $134,000 annually. This amount may be adjusted for inflation in 2012 and beyond.
- Qualified Tuition Accounts – Contributions to a qualified education program (QTP), also called Section 529 Plans, are considered a gift of a present interest and therefore qualify for the annual gift tax exclusion of $13,000. In addition, a donor making a contribution to a QTP in excess of the gift tax annual exclusion amount in one year may elect to have the contribution treated as if it were made ratably over five years. This election does require the filing of a gift tax return.
- Educational Expense Exclusion – No gift tax applies for the amounts paid to educational institutions on behalf of a donee. The payments must be made directly to the educational organization and are limited to direct tuition costs only. Payments made for books, supplies, dormitory fees, etc. do not qualify.
- Medical Expense Exclusion – No gift tax applies on funds paid for the medical care of an individual. Qualifying medical expenses are those incurred for diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body, transportation for medical care, and medical care insurance. These payments must be made directly to the medical institution.
- Gifts to charity do not impact your lifetime gift exemption.
Estate and gift tax planning is a highly complicated area and we encourage you to consult with your tax advisor when you are considering making gifts. We at Hughes, Snell & Co., P.A. are happy to assist you with any questions you may have regarding the complex tax consequences of gifting. Please contact us to discuss your specific situation.
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used for the purpose of avoiding penalties assessed under the Internal Revenue Code.
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