Do you owe Gift Tax? Most people aren’t even aware a Gift Tax actually exists! Well, for simplistic purposes, gift tax is a tax placed on any gifts, which you have given to someone while you are still living. Even though you are allowed to give any amount b/w spouses with no gift tax affects, there is a current annual limit allowed to give to anyone else without owing gift tax. That exemption is currently set at $13,000/per person/per year. There are more complex specifics beyond this financial minute related to gift tax law, however, the basic advice related to gift tax planning is to NOT exceed gifts of over $13,000/per person/per year.
Answer: Do you owe Gift Tax?: Gift tax is a tax assessed on the person giving the gift, not the one receiving the gift. Gifting cash or assets of any kind under $13,000/per person/per year is the easiest way to steer clear of owing any gift tax. The problem lies when gifts are given that exceed the $13,000/per person/per year (excluding spouses). In this case, in order to bypass paying immediate gift tax, you are allowed to elect the excess over $13,000 to be applied toward your lifetime gift-tax exclusion. However, as you know the IRS is always going to get their fair share at some point. Therefore, at your death all the gifts you given during your life subject to the gift-tax exclusion and or left in your estate would be subject to tax if they exceed $1,000,000. Gift tax laws are very complex, and they involve some combined planning with estate & generation skipping tax laws in order to cover all aspects. The key is to keep all gifting of cash and or assets under $13,000/per person/per year to avoid further gift tax planning issues.
Sources: Disclaimer: I am Andrew Rice, Vice-President of Money Management Services, Inc. a SEC Registered Investment Advisor. This blog post on “Do you owe Gift Tax” should NOT be construed as personalized advice. Andrew D. Rice, AIF®,CTS™,WMS