A brief summary of gift tax

As I am fond of saying, there are gifts and then there are gifts.  What in the world I am talking about?

I’m talking about federal gift tax laws.  There are two gift tax provisions to be aware of: the annual gift tax exclusion and the gift tax.  Today’s edition is to give you a bit of background on gift taxes; the next post will discuss how to use the gift tax to help in the business succession of your farm or ranch.

Annual Gift Tax Exclusion:

The annual gift tax exclusion permits a person to gift, in 2013, up to $14,000 to an individual.  There is no limitation on the number of individuals who may receive up to $14,000.

If you are married, you and your spouse may contribute up to $28,000 per individual.  This is known as gift-splitting.  Keep in mind that each spouse must agree to the gift and gift splitting must be specified when filing taxes.  This requires each spouse to file a Form 709.

Because this is an annual exclusion, you can make this gift every year to individuals and pay no gift tax.

Gift Tax:

If you gift more than the annual exclusion limit to an individual, you are subject to federal gift tax.  The federal gift tax is part of the unified credit with the federal estate tax.  This means you can gift, in 2013, up to $5.25 million without being subject to the gift tax.

But how does the federal estate tax come into play?  The gift tax applies to lifetime gifts and the estate tax applies to assets left at death.  Whether you gift your assets or leave them at death, the assets are taxed in the same way at the same rate.  Thus, the gift tax and the estate tax are “unified”.  This means that when you combine the value of lifetime gifts and the value of your taxable estate at death, a total of $5.25 million is excluded from tax.

Keep in mind that the above information is general and is for your information only.  It is well worth your time to discuss your specific questions with your attorney and/or tax professional.  If you have specific questions, please feel free to contact us.

2 thoughts on “A brief summary of gift tax

  1. Pingback: 2014 Tax Exclusions, Exemptions Limits Released | Farmer and Rancher One Stop Shop

  2. Pingback: Some basics about the federal estate and gift tax | Farmer and Rancher One Stop Shop

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