Seems I'm always being asked about gift taxes. Who pays them? How much, what rate? Is it income to the donee? Let's look at the basics. You can transfer substantial amounts free of gift taxes to children or other donees through the proper use of the annual federal gift tax exclusion. (You're probably aware that the estate tax has been repealed for 2010, but is scheduled to return in 2011. However, the gift tax has not been repealed, but continues to remain in effect in 2010 as well as in later years.)
The statutory exclusion amount ($10,000) is adjusted for inflation annually, using 1997 as the base year. The amount of the exclusion for 2010 is $13,000.
The exclusion covers gifts an individual makes to each donee each year. Thus, a taxpayer with three children can transfer a total of $39,000 to them every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there is no need to file a federal gift tax return. If annual gifts exceed $13,000, the exclusion covers the first $13,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below). (Note, this discussion is not relevant to gifts made by a donor to his spouse because these gifts are gift tax-free under separate marital deduction rules.)
Gift-splitting by married taxpayers is when each spouse makes a gift to each person and their respective spouse. If the donor of the gift is married, gifts to donees made during a year can be treated as split between the husband and wife, even if the cash or gift property is actually given to a donee by only one of them. By gift-splitting, therefore, up to $26,000 a year can be transferred to each donee by a married couple because their two annual exclusions are available. Thus, for example, a married couple with three married children can transfer a total of $156,000 each year to their children and the children's spouses ($26,000 for each of six donees).
The statutory exclusion amount ($10,000) is adjusted for inflation annually, using 1997 as the base year. The amount of the exclusion for 2010 is $13,000.
The exclusion covers gifts an individual makes to each donee each year. Thus, a taxpayer with three children can transfer a total of $39,000 to them every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there is no need to file a federal gift tax return. If annual gifts exceed $13,000, the exclusion covers the first $13,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below). (Note, this discussion is not relevant to gifts made by a donor to his spouse because these gifts are gift tax-free under separate marital deduction rules.)
Gift-splitting by married taxpayers is when each spouse makes a gift to each person and their respective spouse. If the donor of the gift is married, gifts to donees made during a year can be treated as split between the husband and wife, even if the cash or gift property is actually given to a donee by only one of them. By gift-splitting, therefore, up to $26,000 a year can be transferred to each donee by a married couple because their two annual exclusions are available. Thus, for example, a married couple with three married children can transfer a total of $156,000 each year to their children and the children's spouses ($26,000 for each of six donees).
Staying within these guidlines should not be difficult for most. No gift tax return even need be filed in these scenarios. If, however, you exceed these annual limits and have to file a gift tax return don't panic.
There is the “unified” credit for taxable gifts. Even gifts that are not covered by the exclusion, and that are thus taxable, may not result in a tax liability. This is so because a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $1 million.
No comments:
Post a Comment