Gift Tax Exclusions
The Internal Revenue Service (IRS) has defined a gift as “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 the purposes of income and inheritance taxes, courts have defined gifts as “proceeds from a detached and disinterested generosity.”
There are two types of tax exemptions relating to the taxation of gifts.
- Picture Annual Exclusion
- Lifetime Basic Exclusion
Picture Annual Exclusion
The IRS defined 2016 annual exclusion means that an individual during their lifetime may give up to $14,000 in cash or assets to each of as many individuals or qualified groups each year, and the number of such individuals or groups is not limited. Additionally, married couples can jointly gift up to $28,000 per year per heir or beneficiary, this process is called gift-splitting. For example, a couple could give each of their five children $28,000 per year without any of those gifts being taxed.
Lifetime Basic Exclusion
The second gift tax exemption have several different names, this exemption is often called the lifetime basic exemption exclusion, lifetime gift tax exclusion, estate tax exclusion, lifetime exclusion or sometimes unified credit. The lifetime gift tax exclusion is a running total over an individuals lifetime and the IRS requires individuals to report on the gifts they receive. The maximum lifetime estate tax exclusion is $5,450,000 for 2016. In the above example, any amount gifted to a beneficiary in one year exceeding either the $14,000 or $28,000 annual limit (as applicable), will be counted against the lifetime exemption. This means that at the death of the estate owner, the total amount of wealth that can be transferred to all beneficiaries will be $5,450,000 (assuming the owner dies in 2016), less whatever the amount of the lifetime exemption has already been previously gifted.
Non-taxable gifts can be given to spouses, children, charitable or political organizations, and gifts paid directly to educational or medical institutions. A non-taxable gift, such as paying another person’s medical bills, can become taxable if not paid directly to the institution. For instance, if your adult child paid their own medical bills but you wanted to reimburse them for the money they spent, that gift of reimbursement would become taxable.
Gifts given as promotional events (such as a car given as a prize for a contest), or material gifts given by an employer to an employee are not considered non-taxable gifts and are subject to gift or income taxes. An employer may not avoid income taxes by “gifting” an employee their salary.
However, under certain circumstances some statutory exemptions exist for gifts given by employers to employees. These are considered “de minimus” (meaning very small, or financially immaterial) and may include such things as recognition awards, certain meals, small Christmas gifts, and similar items.
Las Vegas Gifting Attorney Services
Gifts made from a Will or otherwise after death are subject to the lifetime basic exclusion and any amount above that limit will be taxable.
Gifting is a valuable and tax-advantaged method to transfer wealth from an estate to beneficiaries and must be considered in the context of all other relevant factors in consultation with an experienced estate planning attorney and in consideration of the size and composition of the assets, jurisdiction, tax, and the other specific life circumstances of the estate owner. Smith & Shapiro will help individuals, families and businesses know how to maximize the benefits of gift giving and which paperwork is needed and when to fill it out
Contact Smith & Shapiro today and find the solutions that are right for you! (702) 318-5033. Our office are open 8:00am – 5:00pm, Monday – Friday.