12 Nov Can I extend the gift tax exclusion through the entire year?
Q. Can you break down the annual exclusion for gifting into weekly or monthly gifts, meaning extending the exclusion throughout the year instead of in a lump sum?
A. Great question.
The annual exclusion for gifts is $15,000 per recipient per year.
“The $15,000 can be gifted as one big gift or a series of small ones,” said Jeanne Kane, a certified financial planner with JFL Total Wealth Management in Boonton.
She said you should keep track of how much you’re giving and who receives the gifts. It can be easy to forget smaller gifts if you don’t keep a record, she said.
“The annual exclusion is per recipient per year. This means that you can gift multiple $15,000 gifts if you give to different recipients. For example, if you have two kids, you can gift each of them $15,000 a year,” she said.
The annual exclusion is also per person. If you are married, then you and your spouse can each gift $15,000 to a recipient, she said.
“For example, if you are married and have two kids, you and your spouse can each gift each of your children $15,000 a year,” she said. “This means that as a couple you could give each child $30,000 a year.”
Kane said there are certain types of gifts that do not count towards the annual gift exclusion.
For example, you can pay tuition directly to a college or university. With so many students graduating with loans, paying tuition is a fantastic way to help lighten the debt load, she said.
You can also pay medical expenses for another person but you need to pay the provider directly, she said.
“This is a wonderful way to help out a sick relative or friend,” she said. “The key is that you do not give the money to your friend/relative to pay their bills, you pay the hospital or doctor directly,” she said.
Also note that you can make unlimited gifts to your spouse, and gifts to certain charities are considered charitable contributions, she said
You actually get two gift tax exclusions – annual and lifetime.
“The gift tax is like a cup and saucer,” she said. “The cup is your annual exclusion of $15,000 per person per year gift. The saucer is your lifetime gift exclusion. If you give more than $15,000 to a person in a given year, then the excess gift flows over the cup and is caught by the saucer.”
“You do not necessarily have to pay taxes on the gifts that flow into the saucer but you will have to report the excess gift to the IRS,” she said.
You’ll need to give more than $11.58 million in your lifetime to owe gift tax, she said.
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This story was originally published on Nov. 13, 2020.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.