Year-End Gifting

With the holiday season approaching, people may be looking to make gifts to family and loved ones beyond the typical holiday gift. Gifts can come in all sizes and shapes and some may wish to make a more substantial gift than a new sweater.  An individual can make a lifetime gifts of up to $5,450,000 without ever having to pay gift tax.  While most individuals would never imagine making gifts of such amounts without winning the lottery, Gift Tax Returns are required for any gifts made over the annual exclusion amount ($14,000 in 2017 and $15,000 in 2018). 

Each year you are allowed to gift up to a certain amount per an individual without having to report the gift on a gift tax return--the annual exclusion. In 2017 the exclusion amount was $14,000 and that the amount will be increased to $15,000 in 2018. Couples can gift up to $28,000 per an individual in 2017 without having to report it on their taxes, an option known as gift splitting.

Education Exclusion: You may pay for education expenses of an individual and they do not count towards the annual exclusion as long as they 1) are paid directly to the institution providing the education, and 2) must be for tuition only. 

Medical Exclusion: You may also pay for medical expenses for someone and not have it count towards your annual exclusion as long as the payments are 1) made directly to the medical provider, and 2) the medical expenses qualify under the "medical care" requirement for deductions for income tax purposes. 

Downpayment for a home: A common gifting scenario is a parent or grandparent helping out with the down payment for a home so that the gift recipient does not have to pay mortgage premium insurance.  This may require a gift letter but can be a significant assistance for someone looking to purchase their first home. (These gifts are subject to the same gift tax laws and do not qualify for a special exclusion.)

If you wish to gift more than $14,000 to a person but do not want the added hassle of filing a gift tax return, the 4th quarter (end of the year) provides you with an opportunity to make two gifts, one at the end of 2017 and one at the beginning of 2018. By doing this, you can gift up to $29,000 (or $58,000 if a married couple) to another person without having to file a gift tax return.

If you gift to any one person an amount over the annual exclusion in a given year, you will have to file a federal gift tax return (Form 709). This will begin a lifelong, running total to keep track of gifts that you make that are over the annual exclusion. Once you have made gifts exceeding the amount you are allowed to give away in your lifetime ($5,450,000 in 2017 per the Internal Revenue Service), you will then owe a gift tax on the excess amount.

If you have any questions about gifting and other tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Other Topics:

Do I Owe on an Inheritance or Gift?
Qualified Charitable Distributions From Your IRA RMDs
Charitable Giving to 501(c)(3) Organizations

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.