giving/receiving gifts

[Carphunter]

I've read a number of pages on giving financial gifts.

I understand an individual can give 13k, a couple 26k to anyone they wish in a year. I know from reading that's the limit for both the giver and the receiver to not have any taxes on the gifts.

On the givers' end... do they annotate this in their taxes in any way?

On the receivers end, do they have to mark the gift somehow on taxes (even though they won't be taxed on the income).

How does one "document" the gift when it is given/received?

[disneysteve]

The recipient doesn't need to do anything. Gifts aren't taxable.

The giver doesn't need to do anything unless the gift exceeds the annual gift exemption. Then I believe it needs to be reported.

[Carphunter]

that's what i understand... I just didn't know if some notation had to be made somewhere since if it's cash, that money is likely to show up in a bank account, etc., and the IRS might say....what's this? where'd it come from?, etc.

[jpg7n16]

I've read a number of pages on giving financial gifts.

I understand an individual can give 13k, a couple 26k to anyone they wish in a year. I know from reading that's the limit for both the giver and the receiver to not have any taxes on the gifts.

Then what you've read isn't entirely accurate (or I'm misunderstanding what you're trying to say). You can receive over $13k in gifts and not be liable for any gift taxes in 2 scenarios. 1) The giver is paying all gift taxes - so there is no tax for you to pay (even if well over the 13k) or 2) you receive gifts from multiple individuals of 13k or less each.

You can receive over 13k and not have any taxes.

On the givers' end... do they annotate this in their taxes in any way?

Remember that the income tax system, sales tax system, and gift/estate tax systems are all separate. You don't note gifts on your income tax, unless claiming a charitable deduction. Gifts to individuals do not affect your income tax, but may affect your gift tax.

For the giver: as long as the gift is below the 13k exemption, there is no need to file a gift tax return (kinda like income tax, but for the gift tax system)

If you gift 1) over the 13k, or if you gift 2) up to 26k of your own property, then you must file a gift tax return for 1) to pay the gift tax on the amount over 13k and 2) to file that you and your spouse are splitting gifts.

On the receivers end, do they have to mark the gift somehow on taxes (even though they won't be taxed on the income).

99% of the time, they don't - also a gift received is not considered income. Again, they are 2 separate tax systems. You do not have to file a gift tax return when receiving a gift. (There is a concept called a "net gift" where the recipient will be liable for the gift tax, but I honestly don't know how to report that)

The vast majority of the time, there is nothing to file - nothing to do at all really - for the recipient of a financial gift of any amount. Except to be grateful of course.

How does one "document" the gift when it is given/received?

If the gift is under $13k there is nothing to document.

If over 13k, or if splitting gifts with spouse, the donor should file a gift tax return (form 709)

Form 709: http://www.irs.ustreas.gov/pub/irs-pdf/f709.pdf
Instructions: http://www.irs.ustreas.gov/pub/irs-pdf/i709.pdf

[Carphunter]

yep, i read the 709's. trying to get my ducks in a row to explain this whole process to some people.

[kork13]

I'm not familiar with gift taxes, so I only ask out of curiosity for my own edification... Is the giver's $13k limit cumulative throughout each year (multiple small gifts to a single person over the course of a year)? Also, is the $13k limit per receiver, or just a flat $13k total (can a single person make $13k gifts to 3 different people)?

[disneysteve]

I'm not familiar with gift taxes, so I only ask out of curiosity for my own edification... Is the giver's $13k limit cumulative throughout each year (multiple small gifts to a single person over the course of a year)? Also, is the $13k limit per receiver, or just a flat $13k total (can a single person make $13k gifts to 3 different people)?

The 13K is how much you can give to any one person per calendar year. I don't believe it matters if you do it in a lump sum or a little at a time.

The 13K is a per person limit but you can gift 13K to as many people as you'd like. For example, if you have 3 kids and 6 grandkids, you could give every one of them 13K this year. If you are married, your spouse could also give each of them 13K. Also, the recipient does not need to be related to you. You can give anyone up to 13K/year.

[sm808]

If you are to gift over the $13k, you can also use your $1M "lifetime gift allowance" - however, this would require filing a gift tax return and offsetting up to $13k ($26k for MFJ) via the annual exclusion and then documenting the inclusion of this gift in the $1M lifetime gift exclusion. This can get rather dicey, so might want to run it by a CPA or CFP.

[jpg7n16]

The 13K is how much you can give to any one person per calendar year. I don't believe it matters if you do it in a lump sum or a little at a time.

That's correct. It doesn't matter.

If you gave an individual $1000/month = 12k for the year, no gift tax return required (less than 13k = $0 taxable gift).

If you gave an individual $2000/month = 24k for the year, yes gift tax return required (must file either the $11k taxable gift, or file gift splitting for $0k taxable gift)

If you gave 10 separate people each $1000/month = $120k for the year, no gift tax return required (each person was less than 13k = $0 taxable gifts).

Edited to add: Oh and you get to start over next year with a clean slate. Each year, you can do a new $13k per person gift tax free. aka "annual exclusion" (unless they increase the amount).

And in all the scenarios I provided, all recipients have no tax implications whatsoever of receiving the gifts.

[Carphunter]

If you are to gift over the $13k, you can also use your $1M "lifetime gift allowance" - however, this would require filing a gift tax return and offsetting up to $13k ($26k for MFJ) via the annual exclusion and then documenting the inclusion of this gift in the $1M lifetime gift exclusion. This can get rather dicey, so might want to run it by a CPA or CFP.

I've seen mentino of this... but I didn't understand. I didn't know if it meant over the course of your life, you can give up to 1M to a combination of people... but I didn't know what that did for you... like 1M is now exempt or not exempt from some sort of tax at your death... or what.

[jpg7n16]

I've seen mentino of this... but I didn't understand. I didn't know if it meant over the course of your life, you can give up to 1M to a combination of people... but I didn't know what that did for you... like 1M is now exempt or not exempt from some sort of tax at your death... or what.

Well what you can do is this: You get each year 13k per person that you can give away for free. Once the gift gets over the 13k, you start paying gift taxes on the gift. But for only the gift tax piece, you have a cumulative lifetime exemption of $1 million.

So say you've never given a taxable gift before. This year, you gave your brother $30k and your friend $10k. The taxable gifts are then Brother: $30k-13k = $17k taxable + Friend: 10k-10k = $0k taxable. Total for the year you gave away $40k, of which $17k was taxable.

Now in order to not pay taxes on the $17k, you would use $17k of your $1mil lifetime exemption, leaving you with $983,000 of lifetime taxable gifts left you could give away tax free. Anything under the 13k doesn't count against it, anything over the 13k does.

Now next year, your 13k each would reset - so you could give your brother another 13k gift tax free, but the lifetime amount is now permanently down to $983k.

[Carphunter]

ok... I understand that.

But, if you never touch that 1M money before death... is that like a 1M exclusion on estate tax? or... did you just "waste" a 1M exemption you could have only used while alive?

[jpg7n16]

It is my understanding that you just waste the 1M exemption that could have been used.

According to the estate tax law you get a 1M gift exemption and an estate exemption too (Estate Tax Repeal and Lifetime Gifting: The Impact on Your Estate Plan) which for this year is repealed. (all estates pay no estate tax) Last year, it was $3.5M for the estate and $1M for gifts. Which by my understanding meant that an individual could give away $1M in gifts during life and still pass another 3.5M at death tax free.

If you died before using the $1M lifetime exemption, it was just wasted.

I really think that's right, but something I read the other day is making me doubt myself on it.

[Carphunter]

good stuff to read.

what's weird to me is on the 1M gift exemption... why don't the 13k annual's apply to that? If I read the summary correctly, over and above the 13k is counted by the 1M exemption... not the 13k's. Seems like it should all count towards the whole 1M exemption

[disneysteve]

good stuff to read.

what's weird to me is on the 1M gift exemption... why don't the 13k annual's apply to that? If I read the summary correctly, over and above the 13k is counted by the 1M exemption... not the 13k's. Seems like it should all count towards the whole 1M exemption

That would be bad and make the exemption less valuable. It would also mean every time you gave your kids money for any reason, it would be a taxable event. Can you imagine the headaches that would cause? Help your kid buy a car - report it on your taxes. Give your grandson a cash birthday present - report it on your taxes. What a mess that would be. And I'm sure 99% of people wouldn't even bother to report that stuff.