Turning a Gift into a Non-Taxable Transaction by Kenneth J. Strauss, CPA/PFS, CFP

Posted on August 02, 2016

The IRS considers the transfer of money or property from one individual to another without the expectation of an equal transfer in return a taxable gift. However, taxpayers have a number of opportunities to avoid paying federal taxes on transfers they consider to be gifts.

Give less than the Annual Exclusion Amount. For 2016, taxpayers may gift up to $14,000 to as many people as they want free of gift and estate taxes. For married couples, the gift tax exclusion is $28,000 per beneficiary per year. Individuals are also limited to a lifetime exclusion amount of $5,450,000, or $10,900,000 for married couples in 2016. However, couples that split a gift will need to file a gift tax return, even when the amount is less than the annual exclusion threshold.

Give to a Spouse. Gifts made to a spouse are exempt from federal gift taxes, no matter the amount. However, this is not the case when one spouse is not a U.S. citizen. In these circumstances, a U.S. citizen may make an annual gift of up to $148,000 in 2016 to a non-citizen spouse. Similarly, gifts made to a spouse must be “present interest” gifts that do not “come with strings attached” or limit how and when the spouse may use or enjoy the gift.  Any gift to a spouse that is considered a “future interest” will be subject to federal gift taxes and will require the filing of a Gift and Generation Skipping Transfer Tax Return.

Give to Charity or a Political Organization. Gifts made to political organizations or charities are free of federal gift taxes. In addition, individuals who give to a qualifying non-profit organization gain the added benefit of having the ability to deduct the fair market value of their gifts from their taxable income.

Pay for the Education or Medical Expenses of another Person. Individuals who make direct payments to an educational institution or a medical provider on behalf of another person are exempt from gift taxes.

Taxpayers whose gifts do not meet these exemptions will be required to file IRS Form 709, Gift and Generation Skipping Transfer Tax Return.

About the Author: Kenneth J. Strauss, CPA/PFS, CFP, is a director with the Taxation and Personal Financial Planning practice of Berkowitz Pollack Brant, where he works with entrepreneurs and multi-generational family businesses to develop tax-efficient estate, succession and financial plans.   He can be reached in the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000 or via email