Are Holiday Gifts Subject to Federal Gift Tax?

Web Admin - Thursday, December 21, 2017
Barrington estate planning and tax lawyerThe holiday season is a time of giving, but as you celebrate this time with your family and friends, you may need to be aware of a certain omnipresent aspect of American life: taxes. While it will likely only apply to people who earn a high income or have large financial assets, it is still a good idea to understand the Federal gift tax and the impact it may have on the gifts you give and your estate.

What Is the Gift Tax?

When a person transfers property to someone else without receiving something of equal value in return, this is considered a gift by the Internal Revenue Service (IRS), and it may be subject to gift taxes. The person who gives the gift to someone else (known as the donor) is responsible for filing tax forms for the gift and paying the gift tax.

Gift Tax Exclusions

Certain types of gifts are excluded from taxes, including gifts given to one’s spouse, gifts given to a political organization, and tuition or medical expenses paid on someone’s behalf. For other gifts, an annual exclusion threshold applies. That threshold is $14,000 for 2017, and the threshold for 2018 will be $15,000.

The annual exclusion applies to gifts given to an individual person, so if a donor gives multiple people gifts of less than $14,000 each, they will not owe any gift taxes. For spouses, the exclusion is doubled, so a married couple can give a gift of up to $28,000 without owing gift taxes.

In addition to the annual exclusion, everyone is entitled to a lifetime exemption known as the basic tax exemption. For people who die in 2017, that exemption is $5,490,000, and in 2018, the exemption will increase to $5,600,000. The taxable amount of gifts greater than the annual gift tax exclusion threshold can be applied toward this lifetime exemption, and taxes will not be owed on these gifts. However, any amount of the basic exemption used during one’s lifetime will be deducted from the amount of their estate that is exempt from estate taxes upon their death.

Contact a Schaumburg Estate Planning Attorney

Determining how gift taxes will affect your finances and your estate can be a complex undertaking. If you want to make sure you are protecting yourself and providing for your family’s financial security, the skilled attorneys at Drost, Gilbert, Andrew & Apicella, LLC can work with you to ensure you have met your legal requirements and have the financial resources in place that your family needs. Contact our Rolling Meadows estate planning attorneys today at 847-934-6000 to schedule a personalized consultation.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.


Estate Planning and the Annual Gift Tax Exclusion

Web Admin - Friday, December 23, 2016

When you have a moderate to large estate, it is important to ensure that you utilize every money-saving strategy possible. One of the more popular is the annual gift tax exclusion, which is often given to family, friends, and charities around the holiday season. The following offers more information about the annual gift tax exclusion in Illinois, and how you can use it in your estate plan to benefit your beneficiaries now, and far into the future. 

Understanding the Importance of Exclusions  

Upon your death, all of your estate assets will be inventoried and valued. This analysis is done to determine if any state or federal taxes may be owed on the estate. In some instances - in particular, estates for which few to no exclusions were used - the tax burden could significantly decrease the final value of the estate. There are even instances in which the entire estate must be liquidated to meet the tax obligations. The use of annual gift tax exclusions can mitigate this potential issue, and may leave more of your legacy behind for those you intend. In some instances, effective planning may even eliminate any final tax debt altogether. Keep in mind, however, that there are limitations, exemptions, and rules that must be adhered to when using the annual gift tax exclusions. 

Utilizing the Annual Gift Tax Exclusion in Your Estate Plan 

To reduce their federal tax obligations upon death, taxpayers may transfer up to $5.45 million in their lifetime (increasing to $5.49 million in 2017) to their heirs, tax-free. Annually, the maximum amount of tax-free gifting is currently set at $14,000. However, couples may combine their gift exclusion and donate up to $28,000 per year to the heirs of their choosing. Keep in mind that your estate will not be granted any additional tax benefits once you have reached the lifetime limit - unless, of course, the lifetime exclusion is raised. It is also important to understand that poorly planned gifts may not offer the same amount of benefit to you or your heirs. An attorney can help you determine which options may be most suitable for your situation. 

Contact Our South Barrington Estate Planning Lawyers 

At Drost, Gilbert, Andrew & Apicella, LLC, we know how important it is to plan for the future. Skilled and experienced, we can help you utilize creative estate planning solutions that benefit your heirs and preserve your legacy. Learn more about how our South Barrington estate planning lawyers can assist you. Call 847-934-6000 to schedule your personalized consultation today.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.


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