When it comes to gifts, taxes needn't be a worry
By HELEN HUNTLEY
Published November 5, 2006
You know that old expression about looking a gift horse in the mouth? The Times' readership includes a lot of diligent tooth inspectors. I regularly hear from people who just can't believe it when I tell them gift recipients don't owe any income taxes. Here's a typical reaction a reader posted on my blog at tampabay.com:
"My gut feeling is you have money coming in and therefore that is income and income is taxable," "Bally" wrote.
Others tell me they want to give money to their children or grandchildren but are worried about the tax consequences.
Well listen up: Gifts from one individual to another are never taxable to the recipient and rarely taxable to the giver. Yes there is a gift tax, but you have to give away $1-million before it kicks in. If it does, it's the giver who pays, not the recipient.
Gift givers need to know that there are two basic categories of gifts: completely tax-exempt and potentially taxable.
Here's what's in the tax-exempt category: Gifts of up to $12,000 per person per year to an unlimited number of people. Married couples can double that amount by splitting the gift. If you are contributing to a 529 education savings plan, you are allowed to contribute up to $60,000, using up five years' worth of exemptions at once. If you are paying tuition directly to a university or medical bills directly to the service provider, the entire amount is exempt. And if you are giving gifts to your spouse, the sky's the limit.
But what if you want to give your kid a house or a new car or $100,000? If you're giving more than $12,000, you have to file a gift-tax return Form 709, but you don't actually have to pay a dime in taxes until the potentially taxable gifts you've made during your lifetime add up to more than $1-million.
For a husband and wife, that's $1-million each, but you do have to file the form to declare your intention to split a gift if either spouse makes a gift of more than $12,000.
If you're up in the high net-worth category, you need to know that your potentially taxable gifts will reduce your estate-tax exemption, which is $2-million. In addition, if you're giving dough to your grandkids, you could incur the Generation-Skipping Transfer Tax once your gifts to them pass the $2-million mark.
But as long as you don't need the money, tax advisers say giving money away while you are alive makes financial sense.
Alissa Moyer, a manager for accounting firm Deloitte & Touche in Tampa, says many of her wealthy clients give their children property they expect to increase in value, such as real estate or stocks. That's a way to get it out of their estates at its current lower value. Others use gifts to create trusts that provide for their children while restricting their access to the money.
Getting professional advice before you start making big gifts is a particularly good idea in a couple of cases - if your estate is worth $1-million or if you might need Medicaid to pay for your nursing home care within the next five years.
Most of the rest of us should be able to do it ourselves, right down to filing our own gift-tax returns.
"The gift-tax return is not onerous," Moyer said. "If it's just cash gifts, you should be able to do it yourself."
There's also one more thing you need to know: Gifts to individuals are not tax-deductible. And no, it doesn't matter how needy your kids are or what they are planning to do with the money.
I know my Checkers stock has been called, but I don't know where to send it. I tried writing the company and the transfer agent, but my letters were returned.
Checkers says you can send in your certificates and directions for payment of your $15 per share to Computershare. Mail should be addressed to P.O. Box 43014, Providence, RI 02940-3014 or overnight delivery to 250 Royall St., Canton, MA 02021 to the attention of "Corporate Actions." The toll-free phone number is (877) 282-1168.
Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, write firstname.lastname@example.org or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731. Read more questions and answers at http://blogs.tampabay.com/money