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Gift tax figures | The Estate Planning Law Firm

GIFT TAX FIGURES

What is the Federal Gift Tax?

The Federal gift tax is a tax on the transfer of property from a living person to other living persons (or established trusts).

The gift taxis one of many parts of the Federal tax system.  It is a means of taxing transfers of assets from one person to another. The gift tax is applicable in stances where property is transferred during the lifetime of the donor.

Under Federal Gift Tax rules, a gift is taxed based on the year in which itthe transferred of the asset is completed.

In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA)gradually increased the lifetime exemption amounts for gift taxes to $1,000,000, with a maximum tax rate of 35 percent.  

Gift Tax min scaled
Nearly a decade later, in 2010, pursuant to the Unemployment Insurance Reauthorization and Job Creation Act, the lifetime exemption was increased to $5.0 million ($10.0 million for couples – indexed for inflation). When analyzing the applicability of Federal Gift Tax, it is important to keep in mind there are several “gifts” that do not fall within its purview.  One such “gift” that does not fall within the Federal Gift Tax system are gifts to political organizations.Second, gifts for education related tuition on behalf of another person. Finally, the gift tax is not applicable to medical expenses paid on behalf of another individual, if the medical bill is paid directly to the individual or to the medical institution. Who pays the Gift Tax? Generally, the person giving the asset is responsible for paying the Federal Gift Tax.  However, by agreement, the person receiving the gift can agree to pay the tax after receiving the gift. What is considered a gift? Any asset that is transferred to an individual, and in exchange for the transfer, nothing of monetary value is given/received. What can be excluded from gifts? When dealing with taxable gifts, the general rule is all gifts are taxable.  However, as with many federal laws, there are a great number of exceptions to this rule.  For example, the following gifts are likely not considered taxable gifts.
  • Gifts in excess of the annual exclusion for the particular calendar year;
  • Medical expenses paid for someone else;
  • Tuition expenses paid for someone else;
  • Gifts made to a spouse;
  • Gifts make to a political organization; and
  • Gifts made to a charitable organization (limitations apply as to the amount that can be deducted and the qualifications of the organization).

May I deduct gifts on my income tax return?

When an individual makes a gift to his/her relatives, this does not generally impact the amount of federal income taxes that are paid, with a few exceptions.  For example, if the gift was made to an otherwise qualifying charitable organization, such a gift may impact your federal income tax. Whom should I hire to prepare and file my tax returns if I am making a gift? While I do not make recommendations about specific individuals, there are many factors you should consider when determining which tax professional to use for your taxes.
  • How large is the gift that is to be transferred?
  • How complex is the process of transferring the gift?
  • Do I need an attorney, Certified Public Accountant (CPA), or some other professional?
My suggestion, when it comes to gifts and gift taxes, is don’t ask the government for “forgiveness” when a mistake is made.  Instead, plan ahead, speak with a legal and tax professional before you make the gift. Those that have made gifts a part of their estate plan generally utilize the expertise of an estate planning attorney and a CPA.  The estate planning attorney is the proper professional for handling wills and trusts, as well as documentation related to the transferring of assets.  The CPA professional is the proper professional for handling the tax returns and other documents related to the IRS. While some estate planning firms market themselves as proficient in both estate planning and tax preparation, I would never recommend anyone use the same professional for both unique needs.  The process of estate planning, in-and-of itself, is a process that is constantly evolving.  It is these changes that made me realize the need to focus on the area of law, and not spread myself too thin. Contact The Estate Planning Law Firm at (714) 805-9229 for your Estate Plan needs.

What can be excluded from gifts?

When dealing with taxable gifts, the general rule is all gifts are taxable.  However, as with many federal laws, there are a great number of exceptions to this rule.  For example, the following gifts are likely not considered taxable gifts.
  • Gifts in excess of the annual exclusion for the particular calendar year;
  • Medical expenses paid for someone else;
  • Tuition expenses paid for someone else;
  • Gifts made to a spouse;
  • Gifts make to a political organization; and
  • Gifts made to a charitable organization (limitations apply as to the amount that can be deducted and the qualifications of the organization).

May I deduct gifts on my income tax return?

When an individual makes a gift to his/her relatives, this does not generally impact the amount of federal income taxes that are paid, with a few exceptions.  For example, if the gift was made to an otherwise qualifying charitable organization, such a gift may impact your federal income tax. Whom should I hire to prepare and file my tax returns if I am making a gift? While I do not make recommendations about specific individuals, there are many factors you should consider when determining which tax professional to use for your taxes.
  • How large is the gift that is to be transferred?
  • How complex is the process of transferring the gift?
  • Do I need an attorney, Certified Public Accountant (CPA), or some other professional?
My suggestion, when it comes to gifts and gift taxes, is don’t ask the government for “forgiveness” when a mistake is made.  Instead, plan ahead, speak with a legal and tax professional before you make the gift. Those that have made gifts a part of their estate plan generally utilize the expertise of an estate planning attorney and a CPA.  The estate planning attorney is the proper professional for handling wills and trusts, as well as documentation related to the transferring of assets.  The CPA professional is the proper professional for handling the tax returns and other documents related to the IRS. While some estate planning attorneys market themselves as proficient in both estate planning and tax preparation, I would never recommend anyone use the same professional for both unique needs.  The process of estate planning, in-and-of itself, is a process that is constantly evolving.  It is these changes that made me realize the need to focus on the area of law, and not spread myself too thin. Contact The Estate Planning Law Firm at (714) 805-9229 for your Estate Plan needs.

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Disclaimer: This site contains general information only It is not intended to be relied upon as legal advice, nor does it create an attorney-client relationship. This site is for advertisement purposes for Michael J. Holmes, Attorney at Law.

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