This time of year I frequently hear from clients who made gifts to family members asking if they need to file a gift tax return. Gifting can play an important role in an estate plan as a means to avoid estate tax. However, there are limits as to the value of gifts that can pass estate tax free and rules that must be followed with respect to reporting those gifts to the IRS.
In 2012 everybody who was so inclined could make gifts up to the annual exclusion of $13,000 during the course of the calendar year to an unlimited number of people. Regardless of how many gifts were made, as long as no one person was gifted in excess of $13,000 , there was not gift tax liability and no need to report the gift. If a person gifted an individual more than $13,000 in 2012, the person who made the gift, not the person who received the gift, is required to file a gift tax return along with his personal income tax return.
Although a gift tax return may need to be filed, there will be no gift tax due unless and until the person making the gift has reached his lifetime gift tax exemption of $5,120,000. If a gift tax must be paid, the tax liability may be significant since the gift tax rate for 2012 was 35%.
The annual exclusion and the gift tax rate for 2103 are $5,250,000 and 40% respectively. Fortunately, there is no New York State gift tax to increase the tax burden on individuals who are inclined to make generous gifts.
Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.