GIFT TAX INFO

If you gave any one person gifts in 2009 that was valued at more than $13,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts.  The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.

Gifts include money and property, including the use of property without expecting to receive something of equal value in return.  If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

There are some exceptions to the tax rules on gifts.  The following gifts generally are not taxable and do not count against the annual limit:

•Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit

•Gifts to your Spouse

•Gifts to a Political Organization for its use

•Gifts to Charities

If you are married, both you and your spouse can give separate gifts of up to the annual limit of $13,000 to the same person without making a taxable gift.

Gift Splitting: Alternatively, with consent from your spouse, you can make a gift of up to $26,000 ($13,000 x 2) to the same person without making a taxable gift.  This is commonly known as splitting gifts between spouses. Essentially, it means a gift by you and your spouse to a third person can be considered as made one-half by each of you provided there is consent by both spouses.

Irrevocable Life Insurance Trust:  An often overlooked method to reduce an estate is to create a Life Insurance Trust.  Life Insurance is typically overlooked as a means to reduce estate taxes.  If a policy is not owned by the insured party, it is not included in the estate at death. Also, beneficiaries do not pay tax on the funds received from any life insurance.. 

Ask us about making gifts and the tax implications.