Since it is now getting into the middle of November, this is where we all start looking into the holiday season of Thanksgiving & Christmas, and of course to start planning giving gifts, and maybe even huge money and/or property gifts perhaps. Of course when giving a huge valued gift, there could be some tax consequences gifts. Under the federal tax code, not only is there an income-based tax system, but there is a federal gift tax, and unlike the federal income tax, the gift tax is based on the full value of the gift, and not based on the income stream (if any) that the gift produces. So, what are the tax consequences of giving a large valued gift?

First of all there is an annual exclusion on gifts, which is $14,000 for 2014 and 2015, which means that if a person during the year gives a total amount of $14,000 or less worth of gifts (in either money, real estate, and/or personal property), then there would no tax consequences, and a gift tax return (Form 709) would not have to be filed. However, once a person gives a total amount of gifts during the year that is over the exclusion threshold then a gift tax return would need to be filed, and the gift tax return is due on April 15. This exclusion applies per person, so a couple could give away $28,000 worth of gifts, and not have to file a gift tax return.

The gift tax is calculated based on the full market value of the gifts given. The next part of the calculation is that there is a “unified credit” that is applied to both the federal gift tax and the federal estate tax, which is $2,081,800 for 2014. Furthermore, the way this “unified credit” operates is that it is lowered when a person has to file a gift tax return, and if a person uses up this “unified credit”, then the person would have to pay gift taxes on gifts given during the year. So, this “unified credit” against gift taxes is a “lifetime” credit against taxable gifts given by a person over the years. It is also the same credit that is applied towards the federal estate tax, and if the lifetime “unified credit” has been used up; there will not be any credit to be applied towards the person’s estate.

So if you are planning to make large monetary gifts to your friends and/or relatives for this holiday season, please contact us at [email protected], and we can assist you on the application on the federal gift tax, and maybe assist you on some federal estate tax planning, as well.