How do gift taxes work
Q. Gift taxes seem so unfair! How does the IRS know or keep track of how much parents give their children or grandchildren, other family members, friends, etc. What are the limits for gifts to children, etc. Do banks or credit unions have an obligation to report such gifts? Please advise and explain what tax, if any, is determined. Thanks!
A. No one likes taxes, especially when it comes to gifting.
Here are the limits:
The federal lifetime gift tax exemption is $5.43 million dollars per person in 2015, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park. It is tied to the federal estate tax exemption and is indexed for inflation.
The donor is responsible to pay the gift tax, she said.
The federal gift tax exclusion amount in 2015 is $14,000 per person.
“That means that every person can give $14,000 to as many individuals as they want without having those gifts count toward the federal lifetime exemption of $5.43 million,” she said.
Whitenack said spouses can give away a total of $28,000 to as many individuals as they wish without having those gifts count toward the federal lifetime
gift tax exemption.
In addition, certain payments that are made on someone else’s behalf for qualified tuition or medical expenses are not counted for gift tax purposes, she said.
“Such payments, however, must be made directly to a qualifying educational institution or medical care provider in order to qualify for the exclusion,” Whitenack said. “Funds placed directly into a 529 education savings plan also may qualify for the exclusion.”
New Jersey does not impose a gift tax, Whitenack said. Individuals who give more than $14,000 away to any person in one year are supposed to file a federal gift tax return, but no gift tax will be due if the lifetime gifts over the annual exclusion amounts are less than the federal lifetime gift tax exemption, she said.
Banks and credit unions are not responsible for reporting gifts to the federal government, Whitenack said, although they must file a currency transaction report when there is a withdrawal in excess of $10,000.
You may want to meet with an estate planning attorney to see if there are tax-lowering strategies that may be appropriate for you.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.Source: njmoneyhelp.com