Gift Tax Filings
> Gift Tax Filings
Gift Tax Filings
So, you decided to be generous and gift an asset to your loved ones? This is a great way to avoid estate and inheritance taxes during their lifetime, effectively reducing the wealth that will be subject to federal taxes when it’s passed on to heirs. This is a sound strategy, but knowing the gift tax rules is important so the IRS does not come knocking on your door.
What’s considered a “gift”? Basically, any asset you give to another person without receiving something of equal value in return is considered a gift according to IRS rules.
Is an interest free loan considered a gift?
Most individuals give money without expecting anything in return, which would obviously qualify as gifts, but so would an interest-free loan that is forgiven at a later date. You can give property and shares of stocks, but the IRS’s definition of “fair market value” will apply for the gift tax exemption. Be aware that some transactions that you wouldn’t think of as gifts may meet the IRS definition and could trigger a tax bill if the value is above the annual gift tax exemption. For example, paying $30,000 to cover the cost of a child’s wedding reception or honeymoon would be a gift in the eyes of the IRS. So too would a $50,000 contribution to a child’s 529 plan to cover the future costs of college tuition.
Know the limits.
You’re exempt from paying taxes on gifts if you keep them under the $17,000 per-person per-year limit. The only catch with the lifetime gift tax exclusion is you have to report it to the IRS on Form 709. When you use your lifetime gift tax exclusion, you’re effectively applying these gifts to your federal estate tax exemption while you’re still alive. The filing requirement is how the IRS keeps track of how much of your remaining wealth may be subject to estate taxes after you pass away.