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The Easy Way to Avoid the Gift Tax

A financial gift can be a big help, but its important to know the tax impact. When does the gift tax apply, what is it, and who pays it?

GJM CPA Charlie Heid tackled the topic in his monthly appearance on WTOL Your Day. 

The gift tax is a tax on money or property that one living person gives to another. Probably the most important thing to know when it comes to the gift tax is the dollar figure $15,000. For 2019 that’s the annual exclusion amount… in other words that’s the amount of money you can gift to a single recipient without having to report the gift. If you stay at or below that threshold, you’re not required to file a gift tax form 709 to the IRS. If you go over that $15,000 you need to file a form and you’re eating into your annual lifetime exemption.

That annual exclusion is per recipient. So, say for example that you have three kids, and they are all buying their first homes this year, you could gift each one of them $15,000 to help with their down payments without incurring the gift tax or having to file the form.

The gift tax applies if you’re gifting to your children or any other family members or friends. But there’s an exception: your spouse.  

Here’s where the gift tax doesn’t apply:

  • A financial gift to your spouse
  • If you’re paying tuition or medical expenses directly to a hospital or school for another person
  • A gift to a political organization for its use
  • A gift to charity

The person who is doing the gifting is the one to assume the tax impact, if there is one. The recipient of the gift doesn’t owe any tax.

Good tax planning strategies can help you avoid paying the gift tax. First and foremost, don’t go over that $15,000 limit in gifting to any one person during the tax year.

If you’re married, you can essentially double the amount you can gift to $30,000 with no tax impact… because one $15,000 gift could come from you and another $15,000 gift could come from your spouse.

Another strategy is to spread the gift out over a couple of tax years. For example, if you want to give your daughter $25,000 at the holidays, you can do it in two separate checks… one in December for $15,000 and then another check after the New Year for $10,000 for a total of $25,000. That way the gifts will apply to different tax years. 

If you exceed the $15,000 limit in one tax year, you would have to file a gift tax return, or a Form 709 to the IRS, but more than likely you won’t have to pay any gift tax because we all have a lifetime exemption we can “eat into” before having to pay any tax. $11.4 million is the lifetime exemption for 2019. That’s the amount of value in money and property that each US citizen can give away during their lifetime. 

CPA Charlie Heid is a partner specializing in tax services who joined Gilmore Jasion Mahler in 2002. He serves clients across many industries, with a focus on manufacturing & distribution. Charlie appears monthly on WTOL-TV to discuss tax and money issues.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.