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Although most people have heard of the gift tax, the name is somewhat misleading. In most cases, individuals who give large gifts will never pay taxes for doing so. Those who give more than $14,000 to an individual in 2014 will have to tell the IRS about that gift on Form 709. It is important to understand that the $14,000 limit applies to each person who receives a gift.
The $14,000 limit applies to both property and money and is doubled for a married couple giving a joint gift. For instance, a married couple who want to provide money to their kids could gift their child $28,000 without having to report the gift. In the event that an individual does give more than the limit for a given year, that excess is taken out of the individual’s lifetime exemption.
Some gifts do not count toward the yearly limit or take away from the lifetime exemption amount. Gifts that are paid directly to a hospital for medical bills are an example of such an exclusion. Money paid directly to a school to pay for tuition are also eligible for an exemption under the law. It may be possible to contribute five years’ worth of exemptions in one year to contribute to a beneficiary’s 529 college plan.
Giving a gift now can help the recipient of the gift a well as an individual’s estate. To determine whether gifting may be an effective estate planning tool, it may be worthwhile to talk to an estate planning attorney. An attorney may help an individual determine whether the gifts are exempt from estate taxes or any other possible taxation. This may enable an estate to lower its tax burden and leave more for future generations.