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Understanding individual gift tax exemptions

On Behalf of | Nov 1, 2017 | Blog

Most individuals do not worry about the value of gifts that they give to others, and in most cases it is never anything worth great worry in the first place. However, the federal government does place limits on the amount of money one individual can gift to another individual inside of a single calendar. If you do give another person gifts that exceed the yearly cap, you may incur taxation.

Before you go tabulating the exact numbers that you plan to spend this coming holiday season, know that these limits are set fairly high and are unlikely to affect your holiday giving unless you’ve already given a loved one several thousand dollars of gifts this year. Furthermore, several types of gifts enjoy exemption from gift tax.

If you have concerns about taxation diminishing your giving power, you can consult with an experienced estate planning attorney in your area. States maintain their own tax laws that may make the matter more or less complicated than it is here in Southern California. You may find more opportunities than you expect to avoid taxation and clarify your giving plans.

The yearly gift tax limit

At the federal level, gifts enjoy a tax exemption of $14,000 per person per year. This means that you can freely give up to $14,000 dollars of value to another individual each year, unless the threshold changes. These thresholds change from time to time, so it is important to seek out professional guidance on these issues before making big decisions with your own assets. As of October 2017, the individual gift exemption remained at $14,000, but there is no way to know how long to expect the exemption to hold steady.

For those considering how to distribute significant sums of money, or considering gifts surrounding important life events such as graduation or marriage, this exemption is very useful to understand.

Gift tax exemptions

Even if you exceed the giving exemption to an individual, you may be able to avoid gift tax other ways. These include

  • charitable contributions
  • contributions made to another individual’s medical expenses or tuition expenses
  • gifts given to a spouse
  • contributions to certain political organizations

If giving does exceed the yearly exemption threshold, then taxation is on the table. Some people may believe that this is not the kind of thing to worry about at all — after all, is the IRS really going to come after you for giving too much? In general, tax obligations are always important to address fully and promptly.

If you believe that you may benefit from professional guidance around some giving issue, don’t hesitate to reach out to an experienced attorney who can protect your priorities this holiday season.


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