Now is the best time of the year to think about making annual exclusion gifts. The Federal Annual Gift Tax Exclusion for 2016 is $14,000.00. A donor can make tax free gifts of up to $14,000.00 to each individual as he or she may direct. For example, if the donor has five (5) children, the donor could give a total of $70,000.00 this year without any gift tax consequence. The recipient of the gift need not be related to the donor. If married, the donor and his or her spouse could give $140,000.00 to these same five (5) children. The recipient of the gift is not required to include the gift as part of their taxable income, nor does the donor get an income tax deduction for the amount of the gift.
The donor is allowed to make use of the annual gift tax exclusion every year. Assuming the dollar amount of the gift tax exclusion does not change, this same donor could make a gift again in 2017 of $70,000.00 to the same five (5) children. The $14,000.00 annual exclusion is indexed for inflation, so you want to check the rules about the amount you are allowed to give each year. Under current law, if the donor has a taxable estate at death, each annual exclusion gift made by the donor prior to death will save $5,600.00 in estate taxes.
Gifts that are used to pay for qualifying education or medical expenses may exceed the $14,000.00 annual exclusion amount, and not result in any gift taxes.
Please call John Dawson in our Las Vegas, Nev. office at 702-550-4463 with any questions you may have about the gift tax annual exclusion.