There are certain federal taxes beyond income taxes that a person could potentially be exposed to. One of these is the gift tax.
The federal gift tax is a tax on qualifying gifts a person gives to another above a certain amount in a given year. The tax is on the person giving the gifts. Under current exclusion levels, a person can give up to $14,000 a year, per recipient, without triggering gift tax liability. Also, there are certain types of gifts (such as certain gifts related to education expenses) that receive a special exemption and are not counted against a person’s yearly limit.
Many different types of things can be considered gifts for the sake of the gift tax. This includes:
So, while a person does have a sizable exclusion amount to work for each recipient they give gifts to in a year, there are a wide range of things that could count against this amount. When a person suspects their gift-giving to a given individual might exceed the yearly exclusion, careful tax planning can be important. Such planning could help with reducing or steering clear of gift tax exposure.
When a person does end up exceeding the yearly exclusion levels in their gift-giving to another person, it can be important to understand what options they have to address the situation. One option that is typically available to such individuals is to credit the amount that went over the yearly exclusion against their lifetime gift/estate-tax exemption, assuming they haven’t used it up yet. Doing this makes it so a person doesn’t have to pay gift taxes on the excess gifting amount.
When pursuing this option or other options in connection to a potential gift tax liability, it is very important for a person to be aware of and follow the various rules and requirements related to the option. Failing to do this could expose a person to problems with the Internal Revenue Service.
So, when a person is facing a potential gift tax liability or suspects they could be close to facing such a liability, the quality of tax planning that is done in connection to the situation can matter greatly. Skilled tax lawyers can help individuals with gift tax planning and other forms of tax planning.
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