Monday, December 6, 2010

It's that time of year... so what tax issues do I need to worry about with giving gifts.

There is a federal tax on gifts... that being said, you obviously don't need to file a gift tax return or pay gift tax on every gift you make. If that were the case, we'd all be guilty of violating tax law.

Here are the rules of the road. Each year, each person can give up to the annual gift tax exclusion for each person they are giving gifts to, without incurring a gift tax. This year, that amount is $13,000.00. However, even if you give your adult child a car valued at more than that, you likely won't have to pay taxes.

For gifts that exceed the annual exclusion, the person making the gift can use a part of their lifetime unified transfer credit to avoid taxes. So, if you gift more than $13,000.00 to another person, file the return but consider taking a part of your lifetime unified credit.

Another point to consider, if you are gifting for tax purposes and want the gift to happen this year, you have to make sure the gift is fully transferred by year end. That means if you give a fat check to your favorite nephew on Christmas morning, make sure it gets cashed by 2011.

If you are giving large gifts this year, talk to your CPA and attorney to make sure you avoid unintented tax consequences.