Thinking of giving a gift to someone, worried about gift tax consequences?
Gift taxes are a common question from clients, family, and friends. Although gift taxes can get complicated, we are going to break down the basics for you. Here are some typical questions asked:
Are Gifts Given Tax Deductible?
It depends to whom those gifts are given. If those gifts are contributed to a charitable organization, then the answer is Yes. You will want to get the most out of those contributions.
Gifts not given to a charitable organization are not deductible, nor are they taxable to the recipient.
Will I Owe Taxes On The Gift I Give?
The answer to this depends on two factors:
1) What is the amount given per person? If the amount is under the annual gift tax exclusion (value of $13,000/person for 2012) then there are no gift taxes due. If you gave someone more than $13,000 then at minimum you will have to file a gift tax return (Form 709). Also, you will want to move on to factor number 2 below.
2) How much has the person giving the gift given over their lifetime that was subject to the gift tax? Every person is given a lifetime gift tax exclusion. Gifts that are subject to the gift tax reduce this lifetime gift tax exclusion. If the lifetime gift tax exclusion has not been depleted, then there will not be any gift taxes due with the gift tax return when filed.
Will The Person Receiving The Gift Owe Gift Taxes?
No. The responsibility of any reporting or paying of gift taxes falls on the person giving the gift.
What Happens If I Sell Something That Was A Gift?
The person who receives a gift takes on the basis of the giver. Example, Jane gives her daughter stock in Apple. If Jane paid $90/share back in 2009 and her daughter decides to sell it when it is trading at $580/share, then she is going to have to pay taxes on the difference as a gain.
Can My Parents Give Me And My Spouse Gifts?
Yes, in fact this can be used as a tax planning tool to help large estates. The annual gift tax exclusion is on a per person basis. So let’s use an easy example using the current annual gift tax exclusion amount. This is to say that Dad could give Son $13,000 and Daughter-in-law $13,000. To carry it further Mom could give the same amounts and allocations. So in this example, Mom and Dad could shift $52,000 out of their estate without having to file a gift tax return. This basic example didn’t even take into consideration grand kids or giving more than the amount of the annual gift tax exclusion. Proper estate planning can certainly help save some money down the road.
Although gift taxes can get complicated, hopefully this gives you a little better understanding. If you have any questions you can contact us.