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US taxpayers can give up to $13,000 tax-free in gifts each year, with couples able to give up to $26,000. Charitable gifts and donations to a spouse are exempt, while the unified credit exempts the first $1m in gifts during a person’s lifetime or at death. The gift tax exclusion is often used as an estate planning tool. The giver of the gift, not the recipient, must pay the tax on the gift. A gift tax exclusion form must be filed with the IRS for any donation that exceeds the exclusion amount.
The annual gift tax exclusion refers to the amount of money or property that the IRS allows US taxpayers to give away each year tax-free. In 2010, the IRS allows individuals to give $13,000 United States Dollars (USD) to anyone else without being subject to gift tax. A couple could give a total of $26,000 US Dollars (USD) to any one other person, as long as they file a joint tax return. In this case, the gift is divided between the two spouses.
Gifts from one spouse to another are not subject to gift tax, so spouses can give money and property to each other without any tax liability. Charitable gifts are also excluded from the gift tax. Contributions made to a 529 education savings plan by a grandparent for a grandchild are considered gifts and are subject to the gift tax exclusion limit. However, tuition payments made directly to an educational institution on someone else’s behalf are not taxable.
The unified credit is a tax credit that exempts the first $1 million US dollars (USD) in gifts during a person’s lifetime or at death. Donations that exceed the annual exemption of $13,000 United States Dollars (USD) are subtracted from the Unified Credit until the threshold of $1 million United States Dollars (USD) is reached. This credit has the effect of eliminating estate tax on the first $1 million United States dollars (USD) of a person’s estate, whether that estate is transferred during the person’s lifetime or after the person’s death.
People often use the gift tax exclusion as an estate planning tool. It is used to gift lifetime assets that, if left to heirs at death, would be subject to estate tax. Money or property given to a trust is considered a gift, so trusts must be carefully planned to make optimal use of the gift tax exclusion and unified credit.
The giver of the gift, not the recipient, must pay the tax on the gift. A gift tax exclusion form must be filed with the IRS for any donation that exceeds the exclusion amount. IRS Publication 950, Introduction to Estate and Gift Taxes, provides detailed information on the gift tax exclusion. Gift Tax Return The donor must file IRS Form 709 for any gift of more than $13,000 United States Dollars (USD) to anyone who is not subject to the educational exclusion. Gift taxation can be quite complicated and may require consultation with a tax adviser.
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