How the Gift Tax Works
Amherst Resident Seeks Advice
Giving more than $15,000 in cash or assets to one person may mean that you have to a file a gift tax return at the end of the year. What qualifies as a gift by the IRS may surprise you, including paying for a child’s wedding, adding cash to an elderly family member’s bank account and even gifting a car. While all of these may not require you to pay a gift tax, you will need to file IRS Form 709 to fully disclose the information.
An elderly resident in Amherst was looking to gift her children a large chunk of their inheritance. Not wanting to incur additional taxes as a result, she sought the advice of Merrimack Tax Associates.
Understanding the Gift Tax
The rates that go along with the gift tax range from 18% to 40%. The annual exemption for this tax is $15,000 and the lifetime is $11.4 million, meaning that some taxpayers won’t ever need to worry about this tax. However, the gift tax applies to more than cash, including transfer of property and other items such as paying for a child’s tuition.
Exemptions to the Gift Tax
Charitable contributions, gifts to political campaigns and those given to your spouse are exempt from the gift tax. There are other ways to make your gifts exempt that are dependent on how the funds are received. If you are paying for a child’s tuition, sending a check directly to the school can eliminate the need to pay the gift tax. Putting money into a 529 is considered a gift, but this type of savings does count as an exemption. When assisting a family member with medical bills, you can pay the institution directly and avoid any additional taxes.
The tax law surrounding gifts can be complicated, with many strategies to help. The Amherst resident was able to sit down with Merrimack Tax Associates and now has a strategy so that she can give to her children, without incurring any additional taxes.