By: Layne Blasingim
The gift tax is an area of taxation that many taxpayers may not be aware of including the related filing requirements. Though there is an annual exclusion, gift splitting and a large lifetime exclusion, taxpayers should be aware of the possible gifts that could cause filing requirements and possible tax liabilities.
Each taxpayer can make a gift of up to $17,000 to as many people as they wish in 2023 without trigging any filing requirements. This $17,000 is known as the annual exclusion and is normally adjusted for inflation each year.
If a gift that is worth more than the annual exclusion is made, then a gift tax return (Form 709) is required even though there may not be any tax liability. In addition, the amount over $17,000 will reduce the donor’s lifetime exclusion. In 2023 this amount is $12,920,000, but as the tax law is written now this amount is expected to be reduced to $6 million in 2026. Upon a taxpayer’s death the remaining lifetime exclusion (the lifetime exclusion in the year of death reduced by any gifts in prior years exceeding the annual exclusion) will be used to compute the taxable estate.
A general list of transactions typically considered gifts are:
- A direct transfer of cash or other property
- Making below market rate or interest free loans
- Sales for less than fair market value (bargain sales)
- Forgiving a debt
- Transfer of ownership of an insurance policy
When considering total gifts for the year you must consider small gifts as well such as birthday, wedding and holiday gifts.
Some gifts may not be subject to the gift tax at all. If payments are made directly to a medical facility for medical care or school for tuition on behalf of someone else, then the transaction is not subject to gift taxes. However, if the donor gives money to an individual directly to pay these expenses, then the gift tax rules do apply.
If you have any questions you would like to have answered about this topic, please reach out to Elaine Dougherty, CPA in our Morgantown office at 304-554-3371. You may also email Elaine at edougherty@suttlecpas.com.