WTOP Interview: How to Give to Family and Friends — and Avoid Gift Taxes

Interview Transcript:

Shawn Anderson: 5:11 on WTOP. Of course, this is the time of year when we’re giving gifts to family and friends. If you plan on giving money, especially larger amounts though, you’ll want to know how to give without triggering those gift taxes.

Hillary Howard: Well, giving us the details about the best ways to get around this, Dawn Doebler, co-founder of Her Wealth and Senior Wealth Advisor at The Colony Group in Bethesda. How are you doing Dawn?

Dawn Doebler: Fine Hillary.

Hillary: Good! Good to see you! Let’s start with some basics about giving money to family and friends. What do we need to keep in mind?

Dawn: Well Hillary, the most important fact is that it’s not the recipient but the gift giver who is subject to the gift tax. And our article talks about some of the basic rules, so that you can make sure you are compliant. The simplest rule is the federal annual gift tax exclusion and this year the limit is 15,000 per person and it can change each year. So long as you keep the value of your gift below 15,000 per person, you’re free to gift to an unlimited number of people and you will not have to report it or worry about paying any gift tax.

For married couples, each person can give their own exclusion amounts. That means parents can gift up to 30,000 per child without triggering the gift tax and gifts between legally married spouses are exempt. So, you can give an unlimited amount to your spouse and if you do gift in excess of 15,000, you’re required to file Form 709; that’s the gift and generation-skipping transfer tax return. And that doesn’t necessarily mean you’ll only tax, in fact, you likely won’t. The returns used to track your access gifts because they count against your federal lifetime exemption, which applies when you pass away. And here’s where the estate tax laws are intertwined with the gift tax. The government limits how much you can give away over your lifetime. Fortunately, the new tax law increased that to 11.1 million per person. And so as long as you give away less than that over your lifetime, you likely won’t have any federal gift tax.

Shawn: Now, do these rules apply to just giving cash or are other gifts involved here?

Dawn: No Shawn, that’s another lesser known fact. These annual gift amount rules apply, no matter what kind of asset you’re giving. So, buying or giving someone a car or paying off a loan or giving them stocks, does count. And a reminder here, we’re talking about gifts to individuals, not to charity; those rules are different. And if you’re giving to a minor child to avoid taxes, like giving them Apple stock and then selling it in their name, you can be subject to kiddie tax rules.

Hillary: What about having to file a gift tax return, is that something folks need to do?

Dawn: Well, simply put, if the value of your gift falls below the 15,000 per person, per year, then you don’t have to file a gift tax return. If you’re giving larger gifts, one way to avoid having to file, is to remember these limits apply each year. So, see if you can spread the gift over multiple years. There are some other exceptions. A lot more information in our article, but two of them are special rules apply for 529 plan contributions. You can pull those ahead and give 75,000 all at once in one year. And if you pay directly medical expenses or education, pay that directly to the institute providing the service, you don’t have to report that.

And just a reminder; again, gifting your wealth is really one of the season’s great joys and as the size of your gifts increases, it’s really wise to keep an eye on the rules, so you can give more away to people that you love.

Shawn: Alright Dawn, thanks so much. Dawn Doebler, co-founder of Her Wealth and Senior Wealth Advisor of The Colony Group in Bethesda. You can read more about it on WTOP.com.