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Gifting Millions And Not Owing Any Taxes

The chance to donate a gift for the 2010 tax year has passed but there is always 2011. As you may already know, you can gift $13,000 per individual without having any chance of being subject to gift tax for the year. Married couples can gift up to $26,000. This is referred to as the annual gift tax exclusion which is different but related to the recently increased lifetime gift tax exemption.

gift-tax-liabilityHow Does the Lifetime Exemption Compare to the Annual Exclusion?
The lifetime exemption is the amount of gifts an individual or married couple can gift throughout their entire life without being subject to income tax.

The annual exclusion is the amount an individual or married couple can gift per year without being subject to gift tax.  However, the gifts that exceed the annual exclusion are only subject to gift tax when the donor is already above their lifetime gift tax exemption.  For instance, suppose you gift $40,000 to an individual for the year which is $27,000 above the $13,000 annual exclusion.  The $27,000 will be deducted from your $5,000,000 lifetime exemption but it is not taxable.  Thus, you will have $4,983,000 remaining of your lifetime exemption and would only need to report it by filing a gift tax return form 709; but not pay taxes on the gift.

The Increased Lifetime Gift Tax Exemption
The Lifetime Gift Tax exemption for individuals was $1 million in 2010 and is now $5 million for 2011. This same exemption is $10 million for married couples. This increase paves the way for grandparents and parents to pass cash, stock, and investments to their children outside of the estate and thus limit their exposure to the estate tax. But, they need to act quickly as the $5 million lifetime exemption is set to revert back to $1 million for singles & $2 million for couples in 2013.

More Tax Questions? Ask a CPA Online.

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