Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

What You Need to Know About the Gift Tax Exclusion & How to Potentially Avoid it

Author: James F. McDonough

Date: July 15, 2015

Key Contacts

Back

Currently, the gift tax exclusion threshold is $14,000, but most high net worth individuals will probably never pay the tax, according to the Motley Fool.

This is due to the fact that even if individuals exceed the $14,000 limit, they will most likely only need to file a gift tax return and apply part of the unified credit – equal to $5,430,000 in 2015 – although they will not owe any money to the federal government.

The gift tax exclusion

The original intention of the gift tax was to prevent individuals from skirting federal estate taxes prior to death. However, despite its design, the gift tax is avoidable because current laws have two provisions in the federal gift tax exclusion that only require most individuals to file a gift tax return. The annual gift tax exclusion allows individuals to give gifts valued at no more than $14,000 per person (donee) for 2015 without paying gift tax or filing a gift tax return.

The annual gift tax provision is the more popular alternative because it saves the lifetime exclusion for the estate tax, which applies only to estates (and lifetime) valued at $5.43 million. Therefore, even if a gift amount exceeds the $14,000 threshold, an individual will need to file a gift tax return and apply a portion of their lifetime exclusion toward the gift, which eliminates the gift tax altogether. However, the $14,000 threshold only applies to gifts to one donee, meaning that an individual can give several $14,000 gifts to different donees in 2015 without being subject to the gift tax. The benefits extend with a married couple as well because these couples can give $28,000 per donee in gifts to an unlimited number of individuals without tax repercussions.

The second alternative is to use the lifetime exclusion in gifting, which enables individuals to exceed the $14,000 threshold without paying tax. With this provision, individuals can file gift tax returns for a large gift and apply the a portion of their lifetime exclusion. The $5.430 million threshold may be applied to gifts made during life or applied against their taxable estate. A gift of $114,000 to one donee would reduce the lifetime exclusion by $100,000 to $5,420,000.

Benefits of the gift tax exclusions

There are other annual and lifetime gift tax exclusions that do not reduce the lifetime exclusion or count toward the $14,000 annual limitation, such as an unlimited marital gift deductions, tuition and medical expenses. An individual is allowed to gift to a spouse for an unlimited amount without being subject to the gift tax threshold. However, in the case of tuition and medical expenses, there is also an unlimited threshold amount for gifts if the payments are made directly to the educational or medical institution.

According to a recent interview in Forbes, Thomas Brockley, Senior Vice President at RBC Wealth Management, noted that there are several options to avoid paying federal gift taxes so that recipients receive the maximum amount of the gift. Particularly with estates left in the event of death because gift assets left to recipients may be eligible to count against the federal gift tax exclusion amount of $5.43 million.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Corporate Transactions: Best Practices for Successful Deals post image

Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]

Author: Dan Brecher

Link to post with title - "Corporate Transactions: Best Practices for Successful Deals"
How to Conduct a Fair and Legal Employee Termination in 2025 post image

How to Conduct a Fair and Legal Employee Termination in 2025

Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]

Author: Angela A. Turiano

Link to post with title - "How to Conduct a Fair and Legal Employee Termination in 2025"
Admin Dissolution for Annual Report: What You Need to Know post image

Admin Dissolution for Annual Report: What You Need to Know

While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]

Author: Dan Brecher

Link to post with title - "Admin Dissolution for Annual Report: What You Need to Know"
What Is Antitrust Litigation Law? post image

What Is Antitrust Litigation Law?

Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]

Author: Robert E. Levy

Link to post with title - "What Is Antitrust Litigation Law?"
Dissolving Your Business: Essential Legal Steps to Protect Your Interests post image

Dissolving Your Business: Essential Legal Steps to Protect Your Interests

If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]

Author: Christopher D. Warren

Link to post with title - "Dissolving Your Business: Essential Legal Steps to Protect Your Interests"
The Role of Corporate Restructuring in Mergers & Acquisitions post image

The Role of Corporate Restructuring in Mergers & Acquisitions

Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]

Author: Dan Brecher

Link to post with title - "The Role of Corporate Restructuring in Mergers & Acquisitions"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!