Tax Matters

To Give or Receive - that is the tax question

Much legend and myth surrounds gifting. For your planning, here are some high points and ideas:

Firstly: Gifts and Inheritances are generally not income taxable. Any “gift tax” is generally the responsibility of the donor, but there are exceptions.

Exception 1: Savings bonds with built-in gain – the gain is income taxable to the recipient.
Exception 2: some states impose additional tax, but not Florida.
Caution 1: A gift of a capital asset (i.e. a share of stock) has a "basis" for measuring later gain at sale that is equal to that of the donor. Politely ask for a statement of the "cost basis" for your records, and explain why.
Caution 2: Gifts from foreign persons of over $100,000 requires filing IRS Form 3520.
Caution 3: Employer or business gifts which exceed certain limits and do not qualify as an "Employee Award" under a proper, written plan are probably income, thus income taxable.

Secondly: Gifts of over $10,000 a year are not gift taxable – well, sort of. The annual exclusion amount for gifts is now $13,000; plus, husband and wife may “join” in gifting (you file an election form with your Form 1040) resulting in $26,000 per year, and that is measured per recipient. If a gift is for health care of anyone, it must be made directly to the service provider to have that gift excluded – which then does not reduce the annual exclusion. PLUS you presently have a lifetime exclusion for up to $5 million (you must file a gift tax return, but no tax is due). This is counted against your Federal Estate Tax exclusion of $5 million on a dollar for dollar basis.

Planning Idea: You want to be generous with a child, grandchild, or someone close to you. You are willing and able to make a generous gift of a modest home of $150,000; however, your estate is large enough to be taxable. Make an initial gift up to the annual exclusion, then loan the balance as a mortgage loan. Check with your CPA or Tax Attorney and set the loan up at the “Applicable Federal Rate” and have all the customary documents, including recording the mortgage, at closing. Then every year you may choose to forgive the annual exclusion amount.

Thirdly: Charitable contributions are deductible on your income tax return. There will be no net tax savings unless you itemize, and your itemization exceeds your standard deduction. AND even if it does generate a tax savings, it is limited to no more than 50% of your “Adjusted Gross Income” for certain qualified charities, and 30% for private foundations.

For those outside of Florida, be cautious! This is based primarily on Federal tax rules, and Florida law. Some states and municipal governments have the ability to add taxes to an already overly complicated system! Fortunately, at least in respect to personal income taxes, Florida has none, and has limited estate taxation.