Tis the season of giving gifts and putting a smile on the faces of those you care for. If you are thinking of giving a substantial monetary gift, you should be aware of the tax implications beforehand.
Up to $15,000 can be gifted to each person in 2019, without having to file a gift tax return, use your lifetime estate and gift tax exemption, or pay a gift tax. This per person exclusion is on an annual basis. Use it or lose it; it does NOT carry forward to the subsequent year.
Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, must be filed if a gift exceeds the annual exclusion of $15,000 for 2019, or for a gift of future interests. Future interests include reversions, remainders, and any other delayed interest. A taxpayer can gift up to $11,400,000 for 2019 in their lifetime, without incurring gift tax (increased to $11,580,000 for 2020).
Gifting Money Towards Education
Tuition to an educational institution or payments to any person who provides medical care are not considered gifts and do not require a gift tax return; however, the payments must be made directly to the provider. If the payments first go to the donee and then to the provider (and exceed the annual exclusion), a gift has occurred.
Gifting Money to Couples
Spouses have unlimited gifting abilities to each other due to the marital deduction. Spouses also have the ability to split gifts. This means that even if one spouse makes a gift, the gift can be treated as being given by both spouses equally, as long as both spouses consent. Split gifts allow spouses to combine their annual exclusion, which means up to $30,000 in 2019 can be excluded (the annual per person exclusion amount remains the same at $15,000 for 2020).
Gifting to Charities
Gift giving also comes in the form of donating to your favorite charity. In order to deduct a charitable contribution, donors must first ensure that the designated organization qualifies as a charity. Only donations to eligible organizations are tax-deductible. Secondly, it is vital for the taxpayer obtain a written acknowledgement/receipt from the designated charity. This includes gifts of both cash and property, for all contributions of $250 or more. Lastly, it is important to make note that contributions are deductible in the year made only.
If you are a taxpayer over 70 ½ years of age, who makes donations to charitable organizations, you might consider contributing directly from an IRA. By doing so, you may remove existing income from your tax return while still making the desired charitable contribution. Tax-free distributions from an IRA may be made to a qualified charity, up to $100,000 each year. This limit is per individual IRA owner, so married couples filing jointly will both be allowed to exclude up to $100,000 from each of their own IRA’s.
The rules of gifting can be difficult to navigate, and we encourage you to reach out to one of our tax professionals at Maddox Thomson & Associates for any questions you may have regarding your tax situation.