“Gift Tax Limits You Need to Know for Year-End Planning” by Ann Miller, CPA | Manager – TaxAnn Miller head shot

It’s that time of year to finalize charitable contributions before December 31st for tax planning purposes. The most important thing to remember is that you can give $14,000 annually to an individual either directly or indirectly without filing a gift tax return. This is the amount for 2016 as well as 2017.

Annual Exclusion Details

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $14,000 in 2016, the annual exclusion applies to each gift. If you and your spouse want to give away property that you own together, you each are entitled to the annual exclusion amount on the gift. Together, you can give $28,000 to each donee in 2016 and 2017. The general rule is that any gift is a taxable gift. However, there are some exceptions to the rule, such as: gifts that are not more than the annual exclusion for the calendar year, tuition or medical expenses you pay on behalf of someone (these must be paid directly to the school or medical institution), gifts to your spouse, gifts to a political organization for its use, gifts to a qualifying charity for its use.

Estate and Gift Tax Lifetime Exclusion

If you do give more than the annual exclusion amount to one person in a single year you will have to file a gift tax return. However, you most likely will not have to pay any gift tax unless you gave an amount over the lifetime exclusion. The rules let you give a substantial amount during your lifetime without paying the gift tax.

It's important to keep gift tax limits in mind when planning your charitable donations for the year.

The unified estate and gift tax lifetime exclusion amount is $5,450,000 and $5,490,000 for 2016 and 2017 respectively. For example, if you use $500,000 of the limit by making gifts during your lifetime, you have reduced by $500,000 the amount that can pass through your estate free of the estate tax. Also of note is that if one spouse does not use their full lifetime exclusion there is now the concept of portability. Portability allows a surviving spouse to use a deceased spouse’s unused estate tax exclusion in addition to their lifetime estate tax exclusion.

You should not ignore your lifetime limit even if you feel certain that your lifetime gifts will never add up to that amount. It pays to plan your gifts around the annual exclusion amount and the exclusions for educational and medical expenses whenever possible.

If you have questions about your year-end gift tax planning, please contact me at 330.867.7350 or amiller@applegrowth.com for more information.