#MIDDLEBURY
by Mark A. Burns
Last year we provided an overview of some of the tax implications of making gifts. This month we delve into this topic in more detail.
As a reminder, bona fide gifts generally are not subject to income taxes for the recipient, nor are they an income tax deduction for the donor. Also, as long as the annual exclusion amount of $14,000 is not exceeded, there generally are no gift tax implications, including no requirement to file a gift tax return.
Some additional thoughts:
Tuition or Medical Expenses – This is a very nice exception to the general gifting rules. If you wish to pay someone else’s educational or medical expenses, you may do so in any amounts you wish, and these payments do not count as “gifts” for gift tax purposes. But you must make sure the expenses are paid directly to the educational institution or the medical provider. Also, the recipient can be anyone you choose to assist in this manner – e.g., the recipient does not have to be a child or grandchild.
Gifts to Your Spouse – Spouses, including same-sex couples who are legally married, are allowed to transfer unlimited funds or assets to each other with no gift tax implications.
Charitable Donations – Although these donations are often referred to as “gifts,” they are not considered “gifts” in the context of the gift tax rules. Of course, charitable donations may be deductible on your income tax return.
Political Contributions – These are not considered “gifts,” nor are they income tax-deductible.
Certain Loan Transactions – If you make a loan to someone and then forgive part or all of that loan so the other party does not have to repay that portion of the loan, then the forgiven part may have to be treated as a gift for gift tax purposes. Similarly, making an interest-free loan to someone, or using an interest rate below the current rate, could trigger gift tax implications.
Gift Splitting – As mentioned in our discussion last year, a married couple can effectively give a total of $28,000 to someone and still be within the $14,000 annual exclusion limit. If such a gift is made out of a joint bank account, then it is considered that each spouse gave half and therefore no gift tax return will be required. However, if the funds all came from one spouse (e.g., from an individual bank account), then that spouse is allowed to elect to split the gift with the other spouse, effectively saying that each spouse gave 50 percent. But in this case, a gift tax return normally would be required to report the gift-splitting.
This has been a very general discussion of what can be a very complicated subject. Always consult a tax professional if you are uncertain about how tax matters might affect you.
Mark A. Burns, M.B.A., is a C.P.A. with Diversified Financial Solutions PC in Southbury. He can be reached at 203-264-3131 or Mark@DFSPC.biz.
