Taxpayer asks:
This year, I will have been married for 25 years. To celebrate, I bought my wife a very nice piece of jewelry; I have never purchased anything this expensive for my wife before (if you do not count our house and cars). My friend has advised that I will need to pay gift tax on it because it costs more than $10,000. Is he correct? I thought that only the rich paid gift taxes.
Taxgirl says:
First of all, congrats on 25 years! That’s a terrific milestone.
Second, relax. Tell your wife to enjoy her jewelry – gift tax-free!
Assuming that you are both US citizens, there is unlimited gifting between married persons (hubby, are you reading?). This means that you can give each other all of your worldly possessions during lifetime and pay no federal gift tax.
It’s also worth noting that the gift tax exemption is no longer $10,000. It’s $12,000. It is adjusted for inflation each year.
As to your point about the rich paying gift taxes? Well, sort of. Every person can gift $12,000 per person per year with no gift tax consequences. So you can give one person $12,000 or a hundred people $12,000 – it makes no difference. Additionally, married persons can combine their gift tax exemptions and make a combined gift of $24,000 per person per year (though you need to file a gift tax return in order to do this).
If you gift more than this amount in the aggregate (it’s per person not per gift), you would be subject to gift tax on the overage. The donor, not the donee, pays the tax.
Gifts to children are still gifts. This includes cars, college tuition and yes, even Christmas and Hanukkah presents.
Exemptions include medical expenses and college tuition paid directly to the institution by the donor.
So, that’s the scoop. There’s no need to worry about any gift tax consequences (again, so long as you’re both US citizens). Have a fabulous anniversary!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
Thanks Kelly – a great reminder – and a really tricky situation for folks to really pay attention and seek counsel of a qualified professional (CPA or attorney) for the intricacies. For example, if a parent or grandparent is in the wonderful position to be able to provide funds to a child’s (or grandchild’s) 529 education plan, the gifting taxpayer can make currently 5-years worth of gifts to the child (up to $60,000). Again, tax filings are required. Also, be very careful of that real estate (residence) transfer from parents’ names to their son and/or daughters without “gift” considerations.
Lots of good opportunities available if properly planned and executed. It can be straight-forward or fairly complex — but it starts with the “goal” and then the solution.
Oh one more thing. Just because a federal gift tax return might need to be filed does not mean that federal gift tax will need to be paid! Ask your tax advisor about that, too!
Ooh, Jim. Real estate transfers are a huge source of tricks… Fodder for a new post! 🙂
BTW – there are no such “gift tax” limitations to gifts to “qualified charities”. The only considerations deal with the extent of deductions allowed (schedule A) relative to the 30% versus 50% charities. So don’t let this hinder anyone willing and able to make very large donations to truly charitable organizations.
And before anyone asks, no, my spouse and children are not “qualified charities!” That, too, is a blog for another day!
Thank you, Kelly, for participating in the Business Channel’s Theme Day “Wrapping Up Party.”