Although it’s the season of giving, no one wants to share with the IRS. Luckily, the law provides you many opportunities to give gifts to family, friends, and charities tax-free. Some are straightforward, while others may require the help of a professional.
Each year on January 1st, everyone receives what can be thought of as yearly coupons for tax-free gifts. There are several different ways that you can redeem those coupons:
In addition to our annual coupons, we all have a once-in-a-lifetime coupon for taxable gifts, those that exceed or do not qualify for the annual exclusion, called the unified credit. It’s called a unified credit because it unifies the gift tax with the estate tax into a coordinated tax system. Unlike the annual coupons you read about above, once you spend the value of the unified credit coupon for a taxable gift, it’s gone.
Many people assume that because it says taxable gifts, they’ll have to pay the gift tax. Luckily because of the unified credit coupon, most people will never have to actually pay any gift tax. You only have to pay gift tax if your lifetime gifts exceed the unified credit coupon. Under current law, the amount of the unified credit increases each year, but it never resets (unlike the yearly coupons you read about earlier). The 2018 unified credit amount is $11.18 million. However, if you make a taxable gift, you are required to file a gift tax return with your income taxes.
If you plan on making a gift in excess of $15,000 in 2018, then you should talk with us first. Sometimes the best way of making a gift is to just write a check, but other times giving in a trust, through an LLC, or with an undivided interest in property can make more sense and offer your recipient greater benefits (like privacy or asset protection).
While we don’t suggest you give away anything that you might need, if you do have some surplus, gifting programs are a fun way to see your loved ones enjoy your generosity. Give us a call today so we can help make sure you do it without drawing the attention of the IRS.
Editor’s Note: This post was originally published on December 21, 2017. It was updated on November 30, 2018 to reflect current law.