Maximizing Your Federal Gift Tax Exemption

Although we don’t prepare income tax returns in our office, I am frequently asked about the tax consequences of various types of gifts. The general rule is that all gifts are taxable unless they fit into an exception. Fortunately, the exceptions are many.

Briefly, the following gifts are not taxable:

  • Gifts to your U.S. citizen spouse.
  • Gifts to your non-U.S. citizen spouse not exceeding $147,000 per year. (This amount is indexed for inflation.)
  • Gifts to charities that qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code. (You may also claim a charitable deduction for the value of these gifts if you itemize.)
  • Gifts of tuition or medical expenses paid directly to an educational or medical institution.
  • Gifts not exceeding the annual gift tax exclusion amount. ($14,000 per donee for 2015. This amount is indexed for inflation).
  • Gifts to political organizations, provided that the organization keeps the money for its own use.
  • In general, business gifts not exceeding $25.

If a gift does not fit into one of the exceptions, it is taxable. No gift tax is paid, however, until an individual’s total taxable gifts exceed the lifetime exemption – which is currently $5.43 million. This lifetime exemption is “portable,” meaning that if one spouse dies before using up his or her entire exemption, the surviving spouse may use the remaining exemption amount. This feature is relatively new and, as you can imagine, opens up many planning opportunities.