14 Apr Do I have to tell the IRS about gifts to my grandkids?

Q. I know there are limits to gifting. But if I give my grandkids regular smaller gifts, even if they add up to a lot by the end of the year, will they ever figure it out?
— Grampa

A. Gifting assets, often, is done on the honor system.

Federal and state tax authorities have no direct way of knowing how much is being gifted. The system relies on taxpayers self-reporting gifts.

But there are times when the IRS will notice, such as when banks report larger transfers to the authorities.

It seems, though, you’re talking about smaller amounts.

What really matters, though, is if the gifts to each person add up to more than the annual exemption amount.

That’s because the IRS can impose penalties if it discovers that you failed to file a gift tax return even if no gift tax was due.

It would be smart to talk to a professional to help you determine an appropriate gift and estate tax strategy. It’s especially important if you may someday want Medicaid. It will look back at five years of your finances, and it could lead to a time period you could be uncovered.

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This story was originally published on April 14, 2023.

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.