Cash Gifting
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| Gifting Basics |
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You may be in a position to consider cash gifting to your family members or others. It is best to be sure to check the latest regulations regarding any gifting programs. We want to give a brief overview of the requirements to assist you.
"The key to a happy retirement is to have enough money to live on, but not enough |
The Internal Revenue Service provides information on its website (irs.gov) on gifting. See Publication 950 – Introduction to Estate and Gift Taxes for the specific guidelines.
Without taking on the role of a tax attorney, we will just provide some of the key points regarding cash gifting or property gifting, as identified in the IRS Publication 950. The following was taken directly from Publication 950 (Version 9/2008).
Unified Credit (Applicable Exclusion Amount)
A credit is an amount that reduces or eliminates tax. A unified credit applies to both the gift tax and the estate tax. You must subtract the unified credit from any gift tax that you owe. Any unified credit you use against your gift tax in one year reduces the amount of credit that you can use against your gift tax in a later year. The total amount used during life against your gift tax reduces the credit available to use against your estate tax.
The unified credit against taxable gifts remains at $345,800 (exempting $1 million from tax) through 2009, while the unified credit against estate tax increases during the same period. The following table shows the unified credit and applicable exclusion amount for the calendar years in which a gift is made or a decedent dies after 2001.
| Year | For Gift Tax Purposes: Unified Credit | For Gift Tax Purposes: Applicable Exclusion Amount | For Estate Tax Purposes: Unified Credit | For Estate Tax Purposes: Applicable Exclusion Amount |
|---|---|---|---|---|
| 2002 and 2003 | 345,800 | 1,000,000 | 345,800 | 1,000,000 |
| 2004 and 2005 | 345,800 | 1,000,000 | 555,800 | 1,500,000 |
| 2006 - 2008 | 345,800 | 1,000,000 | 780,800 | 2,000,000 |
| 2009 | 345,800 | 1,000,000 | 1,455,800 | 3,500,000 |
Gift Tax
The gift tax applies to transfers by gift of property, as well as gifting money. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.
Generally, the following gifts are not taxable gifts:
- Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,
- Tuition or medical expenses you pay directly to a medical or educational institution for someone,
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
Annual exclusion. A separate annual exclusion applies to each person to whom you make a gift. The gift tax annual exclusion is subject to cost-of-living increases
| Year(s) | Annual Exclusion |
|---|---|
| 1998 - 2001 | $10,000 |
| 2002 - 2005 | $11,000 |
| 2006 - 2008 | $12,000 |
| 2009 | $13,000 |
Important: The information provided does not represent tax advice. Please contact your CPA or tax attorney for guidance on gifting programs.
Cash gifting can be a satisfying part of your retirement. Evaluate your situation and enjoy the act of gifting. |
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