Believe it or not, the end of the year is just around the corner. CCHA is here to help you plan ahead for your 2021 year-end tax gifts, and share what you need to know to best manage your estate plan.
General questions about gift tax
The donor, or the person giving the gift, is generally responsible for paying the gift tax. Under special arrangements, the donee may agree to pay the tax instead.
A gift is considered to be any transfer to an individual where full consideration (measured in money or money's worth) is not received in return.
What Can Be Excluded from Gifts?
The general rule is that any gift is taxable. However, there are many exceptions to this rule. Generally, the following gifts are not considered to be taxable.
- Gifts less than the annual exclusion for the calendar year.
- Tuition or medical expenses paid for another individual.
- Gifts to your spouse.
- Gifts to a political organization.
- Gifts to qualifying charities.
Annual Exclusion
Utilizing the annual exclusion properly can significantly reduce the size of your taxable estate without triggering any estate or gift tax. For 2020 and 2021, the annual exclusion is $15,000 per donor, per recipient. The $15,000 amount covers gifts made to each recipient annually. A donor can give anyone, including a friend, family member, or stranger, up to $15,000 per person, per year, free of federal gift taxes. However, if annual gifts exceed the $15,000 amount, the exclusion covers the first $15,000 per recipient, and only the amount above $15,000 is taxable. However, the amount above the annual exclusion is subtracted from the giver’s lifetime gift and estate tax exemption, so long as the lifetime exemption has not been exhausted. The lifetime gift and estate tax exemption is $11.7 million per individual in 2021.
If a gift is not cash, the giver’s “cost basis” carries over to the recipient. So if you give your niece 15 shares of long-held stock worth a total of $15,000 that you acquired for $200 each, your niece’s starting point for measuring taxable gain when she sells it would be $200 per share. If she sells a share for $1,200, then her taxable gain would be $1,000.
Finally, gifts toward tuition or medical expenses are also free of gift tax. To qualify for this break, the donor must make the payment directly to the institution.
Gift-Splitting by married taxpayers
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If married, a gift made during a year can be split between spouses even if the gift is only actually given by one spouse. By taking advantage of gift-splitting, a couple can gift up to $30,000 a year to a single recipient.
Both spouses must consent to gift splitting on each gift tax return(s) that the spouses file. A gift tax return must be filed if more than $15,000 is being transferred by a spouse, even if the $30,000 exclusion covers the total value of the gifts. CCHA can assist in preparing a gift tax return (or returns) for you or your loved ones.
Contact CCHA for an Estate Planning Attorney to assist with Year-End Tax Gifts
Of course, CCHA recommends you consult your tax advisor and an attorney prior to making any year-end gifts. Contact an Estate Planning attorney at CCHA for a partner you can trust to help with comprehensive estate planning services.
The IRS is a great resource when it comes to additional questions about gift taxes.
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