Courtesy of Guest Blogger, Stanley J. Bushner, Shareholder, Buckno Lisicky & Company CPA's
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Questions arise during the year on gifting, mostly a gift from parent to child. I will try to explain misconceptions on gifting, using a parent giving a cash (or check) gift to a child (assume child is of legal age).
A gift is defined as a transfer, either directly or indirectly, where full consideration is not returned. If the donor (parent) gives a cash gift to her donee (child), the donor cannot take a tax deduction and donee does not have income. Where the parent does not want the transfer to be treated as a gift but instead a loan to the child, a loan agreement, proper interest rate and payments made must all be evident.
Filing of a gift tax return is not required, if the donor and or spouse give $14,000 (annual exclusion) in 2015 or less annually to each donee. If the donor gives in excess of the $14,000 per donee annually, a gift tax return must be filed (Form 709). No tax will be due, if the donor’s lifetime gifts are under $5,430,000 for 2015.
A married couple can join together to split the gift to the donor, where the gift is in only one spouses name. Split gifting is beneficial to maximizing the annual exclusions of $14,000 for both spouses. In this case, a gift tax return needs to be filed (even if half the gift is less the annual exclusion).
There are other excluded gifts that will not be counted towards the $14,000. Unlimited cash gifts made for tuition and medical expenses for the donee (must be paid directly to the educational institution or medical provider), gifts to a spouse and political organizations.
It is advisable, to consult your attorney and accountant before making a substantial gift.