James F. McDonough
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Understanding the Perks, Exclusions of the Gift Tax Law
Author: James F. McDonough
Date: July 29, 2013
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The gift tax law is a popular strategy used by individuals and business owners of all income levels to reduce their taxable estate and pass on wealth, property, and assets to future generations. While most people may know the basics of the gift tax law, many may not be aware of the fine details that may impact their tax and estate planning decisions.
In a recent Wall Street Journal column, an individual wrote in expressing confusion over the limitations and exclusions associated with the gift tax law. One of the most common misperceptions about the rule is that the gift tax exclusion only applies when gifts are passed down to children or spouses. In actuality, the Internal Revenue Service allows a person to extend gifts of up to $14,000 to whomever they wish in 2013. This number doubles to $28,000 for married couples filing jointly. This means that a person or couple may extend gifts up to that limit to children, siblings, neighbors, friends, parents, or even strangers without facing tax liabilities. Further, individuals may give these gifts up to as many people as they wish. Typically, gifts given between spouses are tax-free.
In addition, there are a number of gifts that are excluded from the annual limit. For instance, a person may pay for the medical expenses or school tuition of anyone they wish without coming under the limitations of the gift tax law. This means that parents who pay for the tuition of their children – even if the amount exceeds $28,000 – will not be required to pay taxes on any funds that exceed the annual threshold.
Understanding these details can help parents, business owners and individuals make more informed decisions about how to extend financing or gifts to loved ones and help ensure that they don’t face any tax surprises in the future.
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