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Wednesday, December 26, 2012

Limit on Tax Free Gifts Set to Increase

The IRS recently gave taxpayers certainty about one part of the estate and gift tax law.  In October, an increase in the annual exclusion for gifts was announced.  That amount will increase from $13,000 to $14,000 per recipient in 2014. 

The annual exclusion is the total amount you can give away to one person in a calendar year without triggering a requirement to file a gift tax return.  Annual exclusion gifts may result in a lower estate tax, as gifts made prior to death are not part of the taxable estate at death.  Married couples can join to make gifts of twice the exclusion amount per year, per recipient.

A gift tax return will need to be filed for gifts above the annual exclusion amount, although these gifts may not be taxed.  In 2012, tax won't be due until you've given $5.12 million (total) in gifts reported on gift tax returns.  All bets are off, though, for 2013.  Currently, the law for 2013 is that taxes will be due on all reportable gifts above $1 million. 

If you want to gift more than the annual exclusion amount to any recipient in one calendar year, it's a good idea to contact Foley & Foley first.  We can give you ideas about how to reduce or eliminate the gift tax on those large gifts.


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