Some Pointers on Gift Tax Exclusions

The gift-giving season is right around the corner, and the annual gift tax exclusion can be useful as a tax planning tool and tax savings strategy. This exclusion is also an easy and effective way to transfer property without incurring a transfer tax. The gift tax applies to the transfer of property by gift, from a donor to an individual.

Annual exclusion amount. The first $14,000 of gifts made by someone during the tax year is excluded from the total amount of that donor's taxable gifts for the year. Additionally, a lifetime exclusion amount shelters gifts above the annual exclusion from the current gift tax. For 2013, that unified lifetime gift and estate tax exclusion is $5.25 million. (Gifts between spouses are not subject to gift tax at all.)

Gifts of property. If property is given instead of cash, the value of the gift is the fair market value of the property. The potential downside is that your tax basis in the property gets carried over to the person receiving the property as a gift. That means when the person sells the property, he or she must pay tax on any gain computed using your original basis.

Spouses "splitting" gifts. If spouses consent to "split" (or share) gifts that are made by either one of them during any year, then half the gift can be deemed as having been made by each spouse. For example, a couple who consent to split their gift can transfer up to $28,000 to someone without tax consequences.

Reporting to Uncle Sam. Gifts that exceed the annual exclusion must be reported to the IRS by filing a Form 709 Gift Tax Return.  Although no gift tax is due from the donor until the lifetime exclusion is exceeded, gifts must still be reported each year.  The due date of the form coincides with the Form 1040; i.e., April 15th or October 15th if extended.

 

Please contact our office if you have any questions regarding gift taxes. We would be happy to analyze your tax situation and advise you appropriately.

Gift Guidelines for Employers

Employers should keep the following guidelines in mind when giving gifts to their employees:

• If a company gives its employees a "gift" such as a turkey, ham, gift basket or other item of nominal value this holiday season, the gift will not be treated as either wages or income to the employee, and will not be subject to income or payroll taxes.
• If an employer gives an employee a gift certificate or similar item with a face value, the face value must be included in the employee's wages. Thus, if an employer gives a $50 gift card for the local shopping mall, the employer must include $50 in the employee's wages, subject to income tax withholding and payroll taxes.
• If an employer gives an employee an item either redeemable for or easily exchangeable for cash, then the value of the gift is considered additional taxable wages regardless of the amount involved, and it is subject to both payroll and income taxes.
• Businesses are limited to a deduction of $25 each for gifts to clients.  The value of any client gift that exceeds $25 would be non-deductible.