‘Tis the Season: A Gifting Opportunity

Posted on November 26, 2018 by Jill Fairchild

If you are in the holiday spirit this season, you may wish to make gifts using the 2018 annual federal gift tax exclusion amount. To qualify for the annual federal gift tax exclusion, gifts must be made no later than December 31, 2018.

You may give up to $15,000 to as many recipients as you wish without filing a federal gift tax return and without reducing your lifetime federal exemption, which is currently $11,800,000 for an individual.

If you are married, you and your spouse may each give $15,000, totaling $30,000 per recipient. For example, you and your spouse may each wish to give $15,000 to your child. In this case, your child receives a gift of $30,000, which is not taxable to the parents because it does not exceed the annual federal gift tax exclusion. Gifts are not taxable to the recipient regardless of amount. No federal gift tax return is due and neither your nor your spouse’s $11,800,000 lifetime federal exemption is reduced.

On the other hand, if you and your spouse each wish to gift $20,000 to your child, totaling a $40,000 gift to your child, then you and your spouse made taxable gifts because it exceeds the annual federal gift tax exclusion. However, unless you have exhausted your lifetime federal exemption, you will not owe any federal gift tax, but you will need to file a federal gift tax return and reduce your lifetime federal exemption amount by the amount over the annual exclusion.

Utilizing the annual gift tax exclusion is a useful tool for reducing one’s estate during life and thereby reducing one’s taxable estate at death.

Other tools to reduce your taxable estate include making unlimited gifts to IRS-approved charities, as well as making unlimited gifts to your spouse (assuming he or she is a U.S. citizen). The IRS also allows for an individual to pay unlimited amounts for another person’s medical and tuition expenses so long as the payments are made directly to the medical providers and the educational institutions, respectively.

This post covers only the basics of gifting options. To learn more about gifting, please contact Jill Fairchild at 206-332-7546.