Client Question: Gifting Considerations

November 17, 2022

At some time in your life (and perhaps during the holiday season), you may be positioned to gift (or receive) a meaningfully sized gift of money or another asset. A client is on the receiving end of that equation and reached out for a discussion about gifting and the potential tax implications. Very timely topic to explore this week!

Who needs to pay attention to gifting rules?

The rules I’ll discuss concerning gift tax and lifetime gifting limits apply to the person making the gift

What does a recipient need to be mindful of?

As a recipient, you are responsible for ensuring the amount you’re receiving is really is a gift (ie: you wouldn’t want to take cash for services you provided as part of your profession and call that a gift, as that should be reported as wages).

You also need to be mindful of what you are receiving and how that may impact you in the future. Cash is straightforward – but if you get appreciated stock as an example, you will also inherit that unrealized capital gain (here’s a helpful article on gifting stock) If you inherit a retirement account, there are specific rules that vary by type. So, as recipient, pay attention to what you’re being given and seek professional tax advice as needed.

What are gifting rules for the giver?

The IRS has limits on gifting. As of 2022, an individual can gift up to $16,000 to anybody—and any number of people. (This will increase to $17,000 in 2023) Why the limit? There is a lifetime gifting limit for each individual as well (which as of now is $12.06 million, rising to $12.92 million in 2023) but is always subject to change). If you exceed that limit in your lifetime, you get into estate tax territory. So, the IRS gives us each a certain amount we can gift each year without paperwork and if we exceed it, you must file a gift tax return with your taxes that tracks your lifetime total (in excess of the exemption in any given year).

Keep in mind the exemption is per person – so if you are a parent who is married, gifting to a married child, you and your spouse could each gift $16,000 to your child and to their spouse in 2022. And if you still want to gift more, you can do so but a gift tax return will be required.

A gift tax return tracks your gifting over time (the amounts exceeding the exemption each year). That tally is tracked and compared against your lifetime exemption.

Anything else to consider?

As always, our advice is that everyone’s situation is unique. Consider consulting your own tax and financial advisor before making any large gifts.

Happy gifting!

Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article. Consult your financial advisor and tax advisor if appropriate before taking any actions as it relates to your own investment portfolio and tax strategies

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