by Eric Murphy
Under current IRS regulations, when a donor makes a gift in excess of $14,000, they must file Form 709 to report the gift and pay tax on the excess above $14,000. This exemption is applicable to each donee the donor makes a gift to in 2016, so they can make one gift for $11,000 to one person and another gift of $12,000 to a different person and they won’t be subject to the tax liability or filing requirement. Under IRC Sec. 2513, this threshold is increased for married couples to $28,000 per donee, with the donor and spouse having the option of making “Split Gifts”, which essentially result in each of them making half of a gift to a particular donee. An example of this is a donor giving his friend $26,000 in cash to buy a car. Under the rule of “Split Gifts”, the donor and his spouse each made a gift of $13,000 to the taxpayer’s friend, therefore neither exceeds the exemption threshold. However, a gift tax return would need to be filed indicating the gift split option was utilized, even though no tax would be due.
There are also some oth
er ways a donor can make gifts in excess of the exemption without being subject to the filing requirement and liability on the excess, under IRS Publication 950. Some of these include:
- Paying the medical expenses for anyone, as long as the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
- Paying the tuition expenses for anyone, as long as the payments are made directly to a third party educational institution. Similar to a gift for a donees’ medical expenses, the gift can’t be given to the donee directly or else it’s subject to the exemption limit.
- Donors can make unlimited gifts to their spouses.
- Donors can make gifts to qualified Political Organizations for their objectives. However, these gifts don’t qualify for a charitable contribution deduction on their personal Tax Return. Gifts to qualified charitable organizations formed under IRC 501(c)(3) are allowed as deductible contributions on the donor’s return and are exempt from the limitation.
The preceding information is a summary of some basics of gift taxation. If you are in the process of estate planning or want to help out someone in need, please contact Langdon & Company, LLP. Our tax professionals can discuss your goals with you and develop a strategy that insures that you’ll have more to give to those you care for.
Eric ([email protected]) is a Tax Senior with Langdon & Company LLP. He works primarily on medical practices, real estate holding companies, and multi-state corporations.