Like any "fair" tax, the gift surcharge comes with its own set of loopholes. Taking advantage of them often requires knowing when to give, who to give to and how much to give at a time.
Gifters can transfer up to $14,000 per year ($28,000 for spouses) in 2014 and 2015 without being subject to the tax. Gifts to a spouse, charity or political organization are exempt from the tax completely, as is the payment of education and medical expenses. The maximum levels have changed over time, so it is important to check with the Internal Revenue Service or a tax professional before making a large gift each year. Although you can make as many gifts of $14,000 or less each year as you wish, it's important to remember that they will count toward your taxable assets for estate excise purposes [source: IRS].
Meanwhile, the estate tax comes with its own unique set of rules. That includes a number of deductions that can be used to lower the value of a person's estate at death. The marital deduction, for instance, provides that all assets transferred to a surviving spouse upon death aren't subject to the estate tax. Transfers to qualifying charities also aren't taxable, along with costs related to administering the estate [source: IRS].
So if you've got it, flaunt it. But if you don't want it eventually going to the tax man, it's probably a good idea to start thinking about who you want to give it to.
- Cordes, Joseph. "Estate and gift tax, federal." NTA Encyclopedia of Taxation and Tax Policy, Second Edition. (Oct. 7, 2014) http://www.taxpolicycenter.org/taxtopics/encyclopedia/estate-and-gift-tax.cfm
- Internal Revenue Service. "Estate Tax." Sept. 29, 2014 (Oct. 23, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax
- Internal Revenue Service. "Frequently Asked Questions on Estate Taxes." Sept. 18, 2014 (Oct. 23, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes
- Internal Revenue Service. "Frequently Asked Questions on Gift Taxes." Sept. 18, 2014 (Oct. 7, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes#8
- TurboTax. "Why it pays to understand the federal gift tax law." 2013 (Oct. 7, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html