Navigating the Guidelines of Gifting

Navigating the Guidelines of Gifting

Many people who have met with a financial professional and estate planning attorney have a well-thought-out plan in place to transfer assets to their beneficiaries upon their death. That’s a critical part of long-term planning, but what if you’d like to give your loved ones money now, while you’re still here to see them use and enjoy it? Or what if your children need financial help in some way and you’re in a position to help them out? Can you gift them the money they need without creating a tax liability for them?

The answer is yes, you can – but you need to pay attention to certain guidelines. You should also speak with a qualified tax professional about your unique situation. The IRS considers a “gift” to be any money freely given to an individual, without something given in return.This can be in the form of cash, stocks or other assets you may transfer to someone else.

For tax year 2017, the IRS allows you to gift $14,000 each year to a designated individual without triggering a taxable event. However, that $14,000 amount applies to each spouse, which means couples can gift $28,000 total to the same individual during the year.2

Woman holding a gift box in a gesture of giving

Something else to keep in mind: This $14,000 limit applies to an individual recipient, not a couple. For example, John wants to give money to his son, who is married. John and his spouse can gift a total of $28,000 to their son. They can also gift an additional $28,000 to his son’s spouse, making their total gift to the couple $56,000 without having to pay taxes.3 It’s important to note that a Form 709 may be required to be filed when money is gifted, even if the donation isn’t a taxable event.4

There are a few exceptions to the $14,000 gift limit. Gifts to your spouse are not included in this rule. Additionally, there are specific exclusions where you may be able to go over the $14,000 threshold. For example, if the money is used to pay for someone’s qualifying educational or medical expenses. Donations to a political organization are also excluded for those who want to support a favorite candidate.5

This hypothetical example is for illustrative purposes only. The content provided in this newsletter is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice. You are encouraged to consult your personal tax advisor or attorney.

Sources:

1  IRS. April 10, 2017. “Frequently Asked Questions on Gift Taxes.” https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes. Accessed June 3, 2017.

2 Ibid.

3 Nick Clements. Next Avenue. Oct. 2, 2015. “4 Rules for Giving Your Heirs Money While You’re Alive.” http://www.nextavenue.org/4-rules-for-giving-your-heirs-money-while-youre-alive/. Accessed June 2, 2017.

4 Rande Spiegelman. Schwab.com. Jan. 6, 2017. “The Estate Tax and Lifetime Gifting.” http://www.schwab.com/public/schwab/nn/articles/The-Estate-Tax-and-Lifetime-Gifting. Accessed June 4, 2017.

5 IRS. April 10, 2017. “Frequently Asked Questions on Gift Taxes.” https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes. Accessed June 3, 2017.