What is the Gift Tax?

Some rights reserved by judsondThe gift tax is something that surprises many. Many people assume that you can give away money or property freely, to whomever you want, without consequences except to your personal wealth. Unfortunately, the IRS does not see it that way. (Florida does not currently have a state gift tax; this is a federal tax issue.)

There is a gift tax that applies to certain gifts, but there are exclusions that can be applied:

  • For the year 2013, you can exclude up to $14,000 of the money you give to each donee. Therefore, you can donate more than $14,000 a year as long as it is to different people or organizations. In addition, you may donate to political organizations (and certain charities—please check carefully on this) without it being subject to the $14,000.
  • Also, you can directly pay someone’s tuition or medical bills and it will not be counted in this $14,000.
  • You may also give your spouse money without being concerned.

The IRS has specific gift forms to fill out if you exceed your gift exclusion and there is a lifetime gift amount that might exclude you from the gift tax all together. Gifts are considered when estate taxes come due, as well. Do not be immediately concerned that this might increase your tax burden in some way, without learning more about gift taxes. The Internal Revenue Service’s FAQs on Gift Taxes is a great place to start.

Attorney Christopher D. Smith with SmithLaw in Sarasota, Florida is an estate-planning attorney and can consult with those interested in learning more about how the gift tax might affect them. Elder law is another area that considers gifts and their ramifications, making sure they are given in the proper manner for the right reasons and that they are not given in a way that could compromise any future health care on long-term care needs.

The consequences of gifting money are also very important to consider for those who might be relying on Medicaid in the future. Medicaid has something called the look back period that considers previous gifting and how it might have affected the value of their current estate. We wrote a post about this previously that helps clarify what the look back period is.

In conclusion, be careful when giving away your money and make sure you consider the ramifications. They could be more serious than you might think.

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