Gift Taxes

“Most people are not aware that gift tax rules apply to gifts they make to friends and family. The attorneys at Romano & Sumner are here to help you with any gift tax issues.”

Experienced Litigators Helping Sort out Gift Taxes for Residents in the Sugar Land and Houston Areas

Gift tax returns are separate from the yearly Form 1040s we all file each year for income taxes. If you have made a sizable gift to another person, you should ask your estate planning attorney the following questions:

  • Is a gift tax return due?
  • What are the effects of gift taxes?
  • Do I need to prepare any other type of document in conjunction with the gift return?

Is a gift tax return due?

Generally, each individual is permitted to gift up to $14,000 per recipient, each year, without any tax consequences. A married couple is permitted to give $28,000 per recipient, each year. Thus, for any year in which you give any individual more than $14,000 (or $28,000 for a married couple), you must file a gift tax return.

Our office is happy to advise you in determining whether a gift tax return is necessary. If a gift tax return is necessary, we can file it on your behalf for any applicable years.

What are the effects of gift taxes?

Filing a gift tax return is unlikely to cause most taxpayers to incur additional taxes. This is because every individual has a lifetime gift exemption amount of $5.45 million (in 2016). The effect of filing a gift tax return is to reduce your $5.45 million exemption by the amount of your gift over the yearly exclusion amount ($14,000 or $28,000). For example, if you transfer a house worth $100,000 to your child, the effect of the gift tax return is to reduce your $5.45 million lifetime exemption amount down to $5.364 million ($5.45 million – ($100,000-$14,000)). A gift tax return will only result in taxes if you give away more than your entire $5.45 million exemption amount during your lifetime.

Even though a gift tax return does not typically cause anyone to incur immediate taxes, the IRS requires the return to be filed whenever applicable. Failure to file the gift tax return for a year in which you made a gift over $14,000 to any one individual can cause you to incur penalties and interest.

Do I need to prepare any other type of document in conjunction with the gift tax return?

In conjunction with filing a gift tax return, it is often advantageous to document the gift through a gifting memorandum. A gifting memorandum documents how the gift was valued at the time of the gifting. The gifting memorandum supports you in the event of an IRS audit if the facts in the gift tax return are challenged. When our attorneys assist you with filing a gift tax return, we will also prepare a gifting memorandum to support the basis of your return.

Call us to speak with the experienced litigators at Romano & Sumner if you have questions or need assistance with filing a gift tax return.

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