There are two very different sets of gifting laws that relate to estate planning, cautions nj.com in its recent article, “When you gift over the annual limit.”
One set of gift rules is straightforward. For Medicaid qualification purposes, there’s absolutely no gifting permitted for five years prior to the program application. That’s seems to create a lot of confusion for people.
The second set of gifting rules concerning estate planning comes from the IRS. In 2017, the gift and estate tax exclusion is $5.49 million. That’s the lifetime exclusion, so an individual can leave $5.49 million to his or her heirs and not owe any federal estate or gift tax. A married couple can protect almost $11 million ($10.98 million) from federal estate and gift taxes.
The $14,000 limit is the most you can gift in any one year to any one person, without having to file an IRS 709 gift tax return. That amount has been set at that level since 2013. There’s no gift tax due, assuming you haven’t already exceeded the $5.49-million-dollar exemption.
However, if you exceed the $14,000 per person/per year limit, you must file a gift tax return.
While it may defy logic or just plain common sense, that’s the way the IRS does it.
The $5.49-million-dollar limit is a lifetime limit. The only way the IRS will know that you have or haven’t exceeded the exemption, is if you file a gift tax return every time you gift more than $14,000.
You see, the IRS is keeping track.
Let’s return to the original scenario of the inadvertent stock transfer that’s a bit over the $14,000 annual limit. That person could just file the gift tax return, since no tax will be due. Another option is to consult with a tax attorney or CPA to find out whether, in that particular situation, that gift might be divided between two people.
Reference: nj.com (October 18, 2017) “When you gift over the annual limit”
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