The holidays is a generous time of giving. However, almost know one wants the IRS to receiving any gifts. Happily, the law allows you to give gifts without letting the IRS receive a portion of that gift. Some of these laws are pretty straightforward with how they protect your gifts, and others are less so.
Your Yearly Coupons
At the beginning of the year, every American adult receives what we will call coupons to allow tax-free gifts. These coupons are all different and allow for different applications. Here are some of them:
Annual Exclusion Gifts
Each individual has an annual ability to give gifts of $14,000 (in 2017, $15,000 in 2018) to as many recipients as they want. These gifts can be of any type, not just cash (non-cash gifts need to have a value of no more than the annual exclusion. Each of these gifts need to be a “present” gift. If you are thinking about using a trust or an LLC to make your gift, you should work with a professional to help you.
Pay Medical Bills
As long as you pay medical bills directly to the doctor, hospital, or medical provider, there is no limit to the amount of gifting you can make during a calendar year.
Pay Tuition
Your ability to pay another’s tuition gives you the same abilities and has the same restrictions of your ability to pay the medical bills of someone else. You do need to understand that this is limited to tuition only, not other costs associated with education.
Give to Charity
You can give as much money to charity as you want without dealing with the gift tax. You may also receive an income tax deduction for these gifts.
Your Once-In-A-Lifetime Gift Coupon
You also have a lifetime coupon, but once you use all of it (you do not have to use all of it at once), it is gone. This coupon says that any amount that you gift that exceeds your annual coupon eats into your lifetime coupon, formally called the unified credit. This coupon is in 2017, $5.49 million, and is scheduled to be $5.6 million in 2018. This coupon means that while you do not have to pay a gift tax, you do have to file a gift tax return to track any gifting that uses this coupon.
When Should I Talk to an Estate Planner?
If you want to gift more than $14,000 to any individual recipient, you should coordinate it with an estate planning attorney to make sure you do it correctly. Sometimes a check is fine, both other situations may means it is better to use a trust, LLC, or some other interest in property. Also, if you are unsure if you might be gifting away more than you can afford, you should work closely with your estate planning attorney and financial advisor for a detailed analysis of your situation.