Every year, you’re allowed to give another person up to the annual gift tax exclusion—this year $14,000—without reporting the transfer to the IRS or having to pay taxes on the sum, says CPA Cari Weston, senior technical manager of the American Institute of CPAs taxation division.
Have you ever wondered if a large financial gift could trigger a gift tax? Many parents find themselves in a position where they want to give a large sum of money to an adult child in need, but they aren’t sure of the tax implications.
One such parent recently wrote to Money and asked if he could give $15,000 to a child to pay off the child's debt.
The answer, given in a Money article titled "When Does a Gift Trigger a Tax Bill?," contains a good explanation of the basics of the gift tax.
As the article explains, you can give up to $14,000 a year to any one individual without triggering the gift tax. You can also give up to $5.43 million in total gifts during your lifetime without paying gift tax, but you are required to file specific forms with the IRS for the same tax year.
For married couples those numbers are doubled.
It is important to note that more can be given to pay tuition or medical expenses. Gifts for those purposes are always tax-free, but must be paid to the school or institution in a particular way. It is best to seek good advice before making that gift.
If you need to give more than that to a child, you might be able to if your child is married. You can give $14,000 to your child and up to another $14,000 to your child's spouse.
If you have other questions about the gift tax or want to know how making gifts can be integrated into your estate plan, speak with an estate planning attorney.
Reference: Money (May 5, 2015) "When Does a Gift Trigger a Tax Bill?"
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