And who doesn’t like to GIVE a gift and witness the joy of its receipt, right?  But, doesn’t EVERYTHING you do have a tax impact?

Well, sure.

IS TAX OWED IF YOU MAKE A GIFT?  Technically, yes.

WHO OWES THE TAX if a tax must be paid because a gift is made?

The person making the gift pays the gift tax if one must be paid.  Sometimes, under special arrangements, the person receiving the gift can agree to pay the tax but, in almost all cases, the donor is responsible for the gift tax.

WHAT IS A GIFT – the scarf you received for Christmas?  Again, technically, yes.

The IRS says a gift is any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.  So, yes, the scarf but there MUST be exceptions, right?  Yes there are.

EXEMPT GIFTS – These are the EXCEPTIONS when no tax must be paid:

Gifts not more than the annual exclusion for the calendar year (this year $14,000);

Tuition or medical expenses donor pays for someone else (the educational and medical exclusions);

Gifts to donor’s spouse; and

Gifts to a political organization for its use.

In addition, gifts to qualifying charities are deductible from the value of the gift made (see more below).

This year, you can make a $14,000 (annual exclusion) gift to each individual; if you are married, you can join with your spouse in making the gift and gift $28,000 and NOT have to pay the IRS the gift tax on those gifts. 

In addition to the annual exclusion, every individual has a lifetime exemption amount.  For 2013, the lifetime gift tax limit is $5,250,000.  In 2014, the lifetime limit will be $5,340,000. In 2014, the annual exclusion will remain at $14,000.

WHAT ABOUT SPOUSES?  You can gift as much as you wish to your spouse without being required to pay a gift tax to the IRS – none of the gifts to your spouse are included in either the annual exclusion or the lifetime gift tax exemption amount.

FILING 709 RETURN – If you find that you have made a taxable gift, you must report the taxable gift on a 709 gift tax return.  The IRS website www.irs.gov has instructions on how to complete the form and you will want to attach copies of appraisals and copies of any documentation regarding the transfer.  Even with the instructions, however, you will likely want to touch base with your estate planning counsel to assure that you have done everything according to Hoyle.

HOW MUCH IS THE TAX?  If you make significant gifts during your lifetime and find that you have exceeded the lifetime exemption of $5,250,000, then your next gift will be subject to gift tax.  The present gift tax rate is 40%.

WHAT ABOUT YEAR-END CHARITABLE GIVING?  Gifts to your friends and family are NOT deductible on your tax returns.  Gifts to qualifying charities ARE deductible but ONLY if you itemize deductions on your Form 1040 and there are some rules to follow. 

IS THE CHARITY QUALIFIED?  The contribution is only deductible if the charity is qualified.  You can go to www.irs.gov and review Exempt Organization Select Check on the IRS website to determine if it is.

ENTIRE CONTRIBUTION MIGHT NOT BE DEDUCTIBLE.  Merchandise, goods, or services – like attendance at a charity ball – cannot be deducted.  You can only deduct the amount of your contribution that exceeds the fair market value of the benefit you received in return for the gift. 

WRITTEN ACKNOWLEDGMENT.  For ANY contribution to be deducted, you must maintain a bank record or written communication from the qualified organization that contains the name of the organization, date of the contribution and the amount of the contribution.  For contributions exceeding $250, you must obtain and retain a contemporaneous written acknowledgment from the qualified organization stating whether goods or services were provided in exchange for the gift and a good faith estimate of the value of those services. 

NONCASH GIFT?  For noncash contributions of $500, you must submit Form 8232.  If the noncash contribution is less than $5,000, complete Section A of Form 8232; if more than $5,000, you need a qualified appraisal of the noncash property and must complete Section B.  If the noncash contribution for which you seek a deduction exceeds $500,000, you must attach the qualified appraisal to your return.

Clearly, if charitable giving is important to you, you should consult with your estate planning counsel.

Happy Gifting and Happy Holidays!!!

Copyright © 2013 Barbara M. Pizzolato, P.A.

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