April 15 is not only the traditional deadline for filing your state and federal income tax returns, but also the deadline for filing gift tax returns via IRS Form 709. Many people are confused about the subject of gift taxes. Here are some common myths about gift taxes and the actual truths about gift taxes:
Myth: The recipient must pay taxes on gifts.
Reality: While the gift giver may face taxes on certain gifts, the recipient usually doesn’t. There are some circumstances, however, when that will not be the case. For example, if you receive a bonus from an employer or tips, these may be subject to income tax. If you are gifted property that has appreciated in value since the giver bought it, you receive the cost basis as part of that gift. If you sell the property, you will be liable for taxes on the difference between the sale price and the cost basis (what the giver paid for it).
Myth: A giver must pay tax on gifts of over $10,000 per year.
Reality: The annual gift tax exclusion rate is currently $14,000 (it increases periodically), and you can give gifts of that amount to an unlimited number of individuals each year without having to pay gift tax. If you give to a charity or your spouse, you can give an unlimited amount without incurring taxes. The lifetime gift tax exemption for 2017 is $5.49 million per person and your annual gifts (so long as they are under $14,000 per person) don’t count towards that number.
Myth: Gift taxes can be avoided by loaning money at no interest and forgiving the loan.
Reality: The IRS requires that you treat a loan like a loan, not a gift. You will have to charge a fair market interest rate and put the terms of the loan in writing.
Myth: You can always deduct charitable contributions from your taxable income.
Reality: Charitable contributions must be made to a qualified tax-exempt charity, and must be itemized. You can check the status of your charity on the IRS website with its Exempt Organizations Select Check Tool. The best way to establish a good gifting strategy for you and your family is to come in for a private Family Vision Meeting, where Pierchoski Estate Law can identify the best strategies for you and your family to ensure your legacy of love and financial security. Call for an appointment at 931.363.7222.
A Note from the Attorney, Stan Pierchoski:
The practice of law is a second career for me. After obtaining Master of Science degrees in both Nuclear and Mechanical Engineering, I worked in the Nuclear Power Industry for 15 years. Always having an interest in law, I attended and graduated from law school and founded the Pierchoski Law Firm in 2002 in Pulaski, TN. For several years I practiced as a criminal defense, trial attorney. After my parents passed I became interested in Trust and Estate Law and felt a strong calling to change my practice to the Estate Planning area.
For years I have been exclusively doing trust writing and wealth planning and have become proficient at it. Over the last several years my practice has evolved to serve all age groups including elders and Medicaid Planning. I am always open to your questions and am more than happy to chat with you about your concerns so give me a call or stop by my office. You’ll be glad you did!