Thinking about giving a gift? Or wondering if that check from Grandma is taxable?
One of the most common questions we get asked is whether a gift is taxable to the giver or the recipient. Most gifts are not subject to the gift tax. Here are some things to consider.
1. Nontaxable Gifts. The majority of gifts that we see are not taxable. They include
- Gifts that do not exceed the annual exclusion for the calendar year, $15,000 this year.
- Tuition or medical expenses you paid directly to a medical or educational institution for someone,
- Gifts to your spouse
- Gifts to a political organization for its use, and
- Gifts to charities.
2. Annual Exclusion. For 2019, the annual exclusion is $15,000. If you give a gift of more than this amount to one person, you will need to file a gift tax return, but even then it’s unlikely you’ll need to pay any tax. You are allowed to give a total of $11.4 million in gifts over your lifetime before any of it becomes taxable. The gift tax return just keeps track of how close you are to that $11.4 million.
3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay taxes on it.
4. Gifts Not Deductible. Making a gift does not ordinarily affect your taxes. You cannot deduct the value of gifts you make (other than deductible charitable contributions). Gifts to Go Fund Me and similar fundraisers are usually not deductible.
5. Forgiven Debt and Certain Loans. The gift tax rules may also apply when you forgive a debt or give a loan that is interest-free or below the market interest rate.
6. Spouses can plan together. You and your spouse can each give any individual up to $15,000. So if you wanted to transfer $60,000 to a married child, you could give your child and their spouse $15,000 each, and your spouse can do the same. No gift tax return required.
The topic of gifts is a tricky one with lots of considerations. Give us a call or stop in to tell us about your specific situation, we’re always happy to help you do some planning!