Today TaxMama hears from Pat in Florida who’s quite generous. “Can you explain the$10,000 gift tax exemption to me? I want to gift my children.”
Dear Pat,
Well, your children are certainly fortunate to have a mother like you. Interested in adopting me?
First of all, the $10,000 gift tax exemption is $12,000 this year. It changes every few years, so be sure to look it up in future years. The big misconception is that the amount of the gift is deductible from your income. It’s not.
Here’s how it works. The United States tax code has a gift tax. When you give someone gifts, you have to pay taxes on the gifts you give them.
However, the first $12,000 worth of gifts to any one person, each year, is exempt from the gift tax. That $12,000 includes all gifts to that person in a year – including birthday gifts, clothing, tickets to shows, etc. So if you are generous throughout the year, deduct your usual generosity from the $12,000. You don’t want to find yourself paying gift taxes on the little things you bought during the year.
Interestingly, when you make payments for things like health insurance, medical expenses, or tuition – directly to the provider, those don’t count towards the gift limit. Also, you may make gifts to anyone, not just family.
When you go over the $12,000 per person per year, you will have to file a Gift Tax Return, Form 709. https://www.irs.gov/pub/irs-pdf/f709.pdf
You can avoid paying any gift taxes on the annual gifts over $12,000 by using up your lifetime exclusion of $1 million. IRS Publication 950 – Introduction to Estate and Gift Taxes, can tell you more about this. https://www.irs.gov/publications/p950/index.html
Enjoy being generous. It comes back to you in so many ways.
And remember, you can find answers to all kinds of questions about gifts and estates and other tax issues, free. Where? Where else? At TaxMama.com
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- IRS Form 709 :: Gift & Generation Skipping Transfer Tax
- IRS Form 709 :: Instructions to Gift & Generation Skipping Transfer Tax
- IRS Publication 950 :: Introduction to Estate and Gift Taxes
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