For gift tax purposes, do you have until April 15 to make a gift for the previous calendar year, similar to an IRA? Also, what happened to the one-time gift of $50,000? And if you make a large one-time gift, does it preclude future annual gifts of $13,000 or $26,000?
-- A Reader
No matter how the government tries to clarify things, gift taxes always seem to raise questions -- and you've posed three good ones. Let me start by putting the gift tax in perspective.
The gift tax was established to keep people from giving away their entire estates during their lifetime in order to avoid estate taxes.
According to the IRS, a gift is the transfer of money or property to an individual where no compensation is received in return.
The general rule is that any gift is a taxable gift. Fortunately, as with most rules, there are exceptions. And the exceptions to the gift tax rules allow individuals to give away a certain amount before having to pay taxes on the gift.
Currently, an individual can gift up to $13,000 a year to anyone -- and to an unlimited number of people -- without incurring gift taxes or even having to report the gift.
A married couple splitting gifts can currently give up to $26,000 a year gift-tax free.
There's also a lifetime exclusion that can be particularly confusing.
The lifetime exclusion historically has allowed an individual to give away a total of $1 million in the course of his or her lifetime -- above and beyond the $13,000 annual limit -- before having to pay gift taxes.
I say "historically" because legislation passed in December 2010 raised this exclusion to $5 million through 2012. It's hard to predict what will happen beyond that date.
With these facts in mind, let's look at your specific questions.
GIFTS MUST BE MADE BY DEC. 31
Unlike IRA contributions, you don't have until the tax due date to make gifts for the previous year. Gifts only count in the calendar year in which they're given. So if you had wanted to make a gift for 2010, in terms of the gift tax, you would have had to make it by Dec. 31 of that year.
But unless you make a gift of more than $13,000 to any one individual, the date is inconsequential from a tax perspective because you don't have to report it. It's only when you give more than $13,000 in a year to any one individual that you have to be concerned about what to report and when.
For example, if you gave your daughter $23,000 in a single year, you'd have to file a gift tax return for the extra $10,000 by the April tax filing date, even if no tax is due at the time. That $10,000 would then count toward your lifetime exclusion.
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for January 28th 2014 | John Ransom
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for January 26th, 2014 | John Ransom