Gift Tax Exemption

You may be thinking about giving a lump sum of cash to a friend or family member, to help contribute towards a wedding, as a birthday or Christmas present, as a payment towards something someone is saving up for.... The reasons for wanting to make such a gift are numerous, and generosity should not be hindered by worries of tax.

Gift tax is imposed when ownership of property or money is transferred between a donor and a recipient. When a taxable gift is made, the responsibility of the paying the tax usually falls on the donor, rather than recipient. Make sure you consider this as part of you r planning before releasing any funds. Gift tax does not only covers cash gifts. The gift tax will apply to any property that is given from a donor to a recipient.

There are gift tax exemptions, providing you meet the criteria for eligibility. Gift tax can differ if the donor will receive some sort of payment in return for the gift.

As of 2009, transfers of up to $13,000 per person per year are exempt from gift tax. Prior to 2009, the amount was $12,000. Married couples can combine the sum of their two transfer allowances (to a total of $26,000) and still receive the gift tax exemption. Accumulated donations throughout a lifetime can amount up to $1 million dollars before gift tax is incurred ($2 million for married couples). Gifts to a political party (for a party to use) to a charity or to a spouse will not incur gift tax.

Gift Tax exemptions only start to get complicated when an estate is involved, or if the donor is aware that they are terminally ill. Gift tax and estate tax directly interfere with one another. Inheritance tax can also become involved if the money is related to an estate.

If your gift is directly linked to an estate, seek independent financial advice before making the gift payment. It is far better to seek advice in advance, than make the payment, which could later be called into question. Your financial advisor will be able to recommend the most effective ways for monies to be transferred as you desire, and will also advise on the most cost effective strategies to ensure you don't pay an extortionate amount of any kind of tax during the transaction.

During these difficult times, it really is an incredible and noble gesture to make a monetary gift to someone you care about; just make sure that it doesn't cost you more than you bargained for.