Holiday Gift Giving...and tax benefits

The holiday season is upon us, and many folks are trying to figure out what to get their loved ones (including me)! At the end of the day, we will figure it out and our families will benefit as a result.

There is some good news for the gift-giver during the holiday season as well. You may be able to avoid paying gift taxes on your gifts to loved ones, and you may not have to use up any of your lifetime exemption to do it (currently $2MM in CT, $5MM Federal). Let's go over how this works…

The donor (gift-giver) is responsible for paying any gift tax owed on taxable gifts. So what is a taxable gift? The general rule is that any gift is taxable, but there are some exceptions to this general rule:

Non-Taxable Gifts

- Gifts that are not more than the annual exclusion for the calendar year.

- Tuition or medical expenses you pay for someone (the educational and medical exclusions).

- Gifts to your spouse.

- Gifts to a political organization for its use.

There are also deductions that can be made to reduce the size of a taxable gift (e.g. gifts to qualifying charities).

But, what if you are making a gift that doesn't qualify for a deduction, and doesn't fall under one of the exceptions above? You still may be able to avoid paying gift taxes yet. This year, you can give gifts of $13,000 in the aggregate to a donee and exclude that amount from the value of your gifts to that person. So basically, if you give $13,000 or less to any particular person you don't pay gift taxes and don't eat into your annual exemption. If you are married, you and your spouse can exclude a total of $26,000 per donee. Not too shabby right?

So what do you do if you have or would like to make taxable gifts above the annual exclusion for any particular donee?

  1. Set up a meeting with your tax advisor ASAP.

  2. Discuss advanced gifting strategies with your tax advisor (you may be able to take advantage of tax laws permitting you to make gifts that reduce your overall tax burden for years to come)
  3. Complete and file a Gift Tax Return (Form 709) for taxable gifts to non-spouse donees in excess of the annual exclusion. Your tax advisor should be able to assist with this.

If you would like help with any of this, feel free to contact me. (Here is my contact info). I am a Connecticut Estate Planning Attorney and I would be happy to set up a consultation with you to see if I can be of assistance.

Categories: Estate Planning, Gifting, Taxes