There are many misconceptions about the gift tax. The most common misconception is that if you give away over a certain amount (i.e. $13,000) that you have to pay gift taxes. This is likely not true in your circumstances. Intrigued? Check out these 11 intriguing gift tax facts.
1. The gift tax is imposed on some lifetime asset transfers.
2. Each year, each individual has an “applicable exclusion amount.” In 2011, that amount is $13,000.
3. This means that you can give away $13,000 per year per individual for as many individuals as you would like. If you’re married, you and your spouse can together give away $26,000 with the applicable exclusion amount allowance.
4. If you go over this amount, you eat up some of your lifetime “unified credit” amount. This year, the unified credit amount is $5,000,000.
5. So, you’d have to give over $5,000,000 before any taxes could possibly be due. That’s way more than the $13,000 “limit” most people impose on themselves.
6. And actually, you and your spouse can give away $10,000,000 without incurring any gift tax. You just have to give it all away in 2011 and 2012.
7. Any payments made directly to a provider of education or medical care is a gift tax exempt gift.
8. You can set up a grantor trust for your beneficiaries and accept the income tax consequences of the trust. This is a way to gift beyond any allowable standards.
9. If it more tax effective to give assets away during your lifetime than at your death.
10. If you give away more than your unified credit amount ($13,000) in any given year, you must file a 709 (gift tax return), but this does NOT mean that you have to pay gift taxes. It just means that you have to let the IRS know that you are using some of your lifetime exemption.
11. Any legal fees associated with tax planning are 100% tax deductible for federal income taxes.
If you have questions about the intriguing gift tax, consult with a qualified estate planning attorney.