FOR IMMEDIATE RELEASE: December 18, 2006

HOW THE GIFT TAX AFFECTS LARGE GIFTS

Does the holiday spirit inspire your generosity? Are you thinking about making a large gift to your children or grandchildren? Before you do so, make sure you understand the tax consequences of your actions. To help you make the most of your gifts and understand your tax liability and that of your recipients, the New York State Society of CPAs provides answers to some frequently-asked questions.

WHAT IS CONSIDERED A GIFT?

For tax purposes, a gift is a transfer of property without expecting to receive something of at least equal value in return. In most cases, if you don’t intend to be reimbursed or get something in return, it’s generally considered a gift.

WHAT GIFTS ARE SUBJECT TO THE FEDERAL GIFT TAX?

When making gifts of property or assets, including cash, you must consider the possibility of paying a gift tax. However, there are ways you can make a substantial gift without being subject to gift taxes. For starters, you can give any number of people gifts that do not exceed the annual exclusion amount. For 2006, the annual per donee exclusion is $12,000.

Paying someone’s tuition bills or medical expenses is not a gift for gift tax purposes, as long as you pay those amounts directly to the school or medical provider. Be aware that the exclusion for directly paid education expenses applies only to tuition. It does not apply to room and board or books and supplies. Under separate marital deduction rules, you can give any amount to your spouse (providing he/she is a U.S. citizen).

HOW MANY ANNUAL EXCLUSIONS CAN I TAKE?

The annual exclusion applies to gifts from you to each recipient. For example, for 2006 you can give each of your children and grandchildren up to $12,000 without gift tax implications. If you are married, you and your spouse are each entitled to the annual exclusion amount if your spouse consents to split the gifts on IRS Form 709. That means you and your spouse together can then give $24,000 to each recipient.

WHAT IF I GIVE MORE THAN THE LIMIT? WHO PAYS THE GIFT TAX?

The donor is generally responsible for paying the gift tax – but just because you give more than $12,000 to a recipient in a year doesn’t mean you’ll necessarily be subject to a gift tax payment. Here’s how it works. If you exceed the current annual exclusion amount of $12,000 ($24,000, if your spouse joins you) in gifts to one person in a single year, the excess amount is applied to your lifetime federal gift exemption, which is $1 million. (If married, both you and your spouse are entitled to separate $1 million lifetime gift tax exemptions.) You are responsible for filing Form 709 to declare the large gift(s) and to keep a running total of the lifetime exemption used. No gift tax is due as long as there is some lifetime gift tax exemption remaining.

HOW DO YOU REPORT THE GIFT TAX?

If you make a taxable gift, you must file Form 709, U.S. Gift and Generation-Skipping Transfer Tax, which is due April 15 of the year following the one in which you made the gift. Even if you do not owe a gift tax because you have not reached the lifetime gift exclusion, you are still required to file this form.

CONSULT WITH A CPA

The end of the year is a good time to examine your annual gift strategy. To qualify as a gift for 2006, you must complete the transaction by December 31. If you don’t, you lose your opportunity to take advantage of your annual exclusion for the current year.

Planned gift giving can be a difficult and complex process. A meeting with a CPA can help you achieve your gift-giving objectives and maximize your tax savings.

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PUBLIC SERVICE ANNOUNCEMENT
UNDERSTAND THE TAX CONSEQUENCES OF MAKING LARGE GIFTS
APPROXIMATE LENGTH: 30 SECONDS

Generally, when you are thinking of being generous, you are not thinking about taxes. However, the New York State Society of CPAs emphasizes that, in order to make the most of your gifts, it is important to consider the tax consequences of your actions. For example, for 2006 you can give each of your children and grandchildren (or any other individual) up to $12,000 without having to file a gift tax return. If you are married, you and your spouse together can give $24,000 to each recipient (if your spouse consents to split the gift on IRS Form 709). Gifts in excess of this amount are applied to your federal gift exclusion which is $1 million. Developing a gifting strategy should be a key component of your overall estate plan. Contact your CPA to develop a strategy for tax-smart gifting.