Legacy, Taxes

How to give to family and friends – and avoid gift taxes

It’s giving season, and, during this time of year, financial advisers field a lot of questions about the rules for giving financial gifts to charitable organizations, family members and friends.

While it may seem counterintuitive, under federal tax law, it’s not the recipient but the gift giver who is subject to the gift tax.

That’s why before you give, you’ll want to reference this list of basic rules:


Annual per person limits apply

The simplest rule to keep in mind is the “federal annual gift tax exclusion.” This limit is $15,000 per person in 2018 and can change each year. So long as you keep the value of your gift below $15,000 per person, you are free to gift to an unlimited number of people and will not have to report it or worry about paying any gift tax. For married couples, each person can use their own exclusion amount, meaning parents can gift up to $30,000 per child without triggering the gift tax. Gifts between legally married spouses are exempt – you can give an unlimited amount to your spouse!

You may need to file a gift tax return if …

… you make a gift in excess of the annual limit. Then you’re required to file Form 709, which is the gift-and-generation-skipping-transfer tax return. This doesn’t necessarily mean you’ll owe any tax. In fact, it’s likely you won’t. This return tracks the extra gift amount and will be deducted from your “federal lifetime exemption,” which applies when your final estate is settled after your death. As an example, if you are married and make a one-time gift of $50,000 for a down payment on a home for your unmarried child, you’d be required to file a gift tax return and report the $20,000 excess gift ($50,000 – $30,000: the combined annual gift limit for a married couple).

Read the full story at WTOP. 
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