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Taxpayers Find Gift Tax Reporting Confusing

Gift taxes were created to prevent wealthy taxpayers from transferring their estates to their beneficiaries via gifts and thus avoid estate taxes when they pass away. But that does not mean only wealthy taxpayers need to be concerned with the gift tax provisions as, under many circumstances, even lower-income taxpayers may find they are liable for filing a gift tax return.


The government uses the gift tax return to keep a perpetual record of a taxpayer’s gifts during their lifetime, and gifts exceeding the amount that is annually exempt from the gift tax reduce the taxpayer’s lifetime estate tax exclusion, which is currently $11.18 million (nearly a two-fold increase from the 2017 exclusion as a result of the Tax Cuts and Jobs Act of 2017).

So what does this have to do with me you ask, since your estate is significantly less than $11.18 million? Well, your estate may be less than $11.18 million now, but what will it be when you pass away? You never know. Another concern is that the IRS requires individuals to file gift tax returns if their gifts while living exceed the annual exemption amount.

Annual Gift Tax Exemption - Under the gift tax rules, there is an annual amount that is exempt from the gift tax, which allows each taxpayer to give up to the specified amount each year to as many individuals as they would like without having to file a gift tax return or pay any gift tax. The annual amount is inflation adjusted, and for 2018 that amount is $15,000 (up from $14,000 in 2017). The recipients of the gifts do not need to be related to the person making the gift.

Example 1: A taxpayer with four children can gift $15,000 to each child for a total of $60,000 without having to file a gift tax return. If the taxpayer is married, each spouse can gift $15,000 to each child, for a total for the couple of $120,000, without having to file a gift tax return.

Example 2: A single taxpayer has one child, a son. In 2018, he gives the son $20,000 to use for a down payment on a home he is purchasing. Because the gift was more than $15,000, the taxpayer needs to file a gift tax return. As long as the amount of the cumulative gifts made by the taxpayer during his lifetime that have exceeded the annual gift tax exclusion amounts in the current and other gifting years is less than $11,180,000, the generous dad won’t be liable for any gift tax on his 2018 gift tax return.

Additional Exclusions - In addition to the annual exemption amount, a donor may make gifts that are totally excluded from the gift tax and gift tax reporting under the following circumstances:

Payments made directly to an educational institution for tuition (payments to Sec 529 qualified state tuition saving plans are not direct). This exclusion includes college and private primary education but does not include books or room and board.

Payments made directly to any person or entity providing medical care for the donee (recipient).

In these cases, it is crucial that the payments be made directly to the educational institution or health care provider. Reimbursement paid to the donee will not qualify for the exclusion. The tuition/medical exclusion is often overlooked, and these expenses can be quite significant. Parents, grandparents, and others interested in reducing the value of their estate should strongly consider these gifts.

Please check with your tax advisor, your Curran Wealth relationship manager, or contact Curran Wealth Management if you have any questions. 518.391.4200 • info@curranllc.com

The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. No one connected with CIM, LLC or CIMAS, LLC can ensure tax consequences of any transaction.