Many people are unaware that a holiday gift splurge may actually be even more expensive than originally anticipated. The Internal Revenue Code imposes up to a 40% flat tax on any gift we make in excess of the annual exclusion, currently $15,000 per Donee. In other words, if you choose to make a holiday gift to a child or grandchild this year in the amount of $20,000, you may actually owe the federal government an additional $900 (calculated at the 18% tier)!
The federal gift tax goes hand in hand with the federal estate tax and was adopted to prevent individual taxpayers from avoiding payment of estate tax by giving away a large estate during lifetime, rather than at death. Each year, you may make gifts below the annual exclusion to as many people as you like, without gift tax repercussions. However, when you exceed that exclusion, the law requires that you report the gift to the Internal Revenue Service by the filing of a Form 709 Federal Gift Tax Return. You may apply a portion of your unused gift and estate tax credit to the tax and avoid the requirement of paying the tax today. However, this will reduce your applicable credit at death.
Gift smart this year! If you have questions about unintended effects of wealth transfer, contact one of our expert estate planning attorneys at Chauvel & Glatt.
The material in this article, provided by Chauvel & Glatt, is designed to provide informative and current information as of the date of the post. It should not be considered, nor is it intended to constitute, legal advice or promise similar outcomes. For information on your particular circumstances, please contact Chauvel & Glatt at 650-573-9500. (photo credit: depositphotos.com).