Many people enjoy giving to others without regard to whether it will be beneficial from an estate and gift tax perspective. Parents and grandparents often make frequent large gifts to their children and grandchildren because the money is needed for essentials such as mortgages, car payments, utility bills, and food. Even if you are aware of the role the annual gift exclusion may play in your estate plan, you may still be gifting for reasons other than the tax benefits. One reason people make inter vivos gifts to their heirs is so they can enjoy watching the recipient of the gift spend the money now rather than after they die.
For some families, using the guideline of the annual gifting limits has become a tradition that is observed whenever funds are available. Individuals with substantial wealth sometimes engage in gifting out of a sense of responsibility to others. Structuring gifts in accordance with the gift tax exemption can also be done as part of Legacy Planning.Whether you plan to give to others in 2020 based on necessity, tradition, tax planning or for personal fulfillment, make a note of the updated federal exclusion amounts and gifting limits that apply for the 2020 tax year as outlined below. If you previously received advice from a professional on the amount you can gift each year, you may not be aware of the total amount you can gift based on limits that apply for the 2020 tax year. You may also want to review information on applicable inheritance taxes.If you wait until 2021 or later to implement a gifting strategy as part of your estate plan, you may look back and wish you had used the gifting limits available to you in 2020. If you make regular gifts every year based on a consistent gifting plan, reviewing the exclusion amount and gifting limits for next year may be helpful in finalizing your gifts for the current year. When gifting as part of the estate planning process, many people choose to gift stock to children.If you made a will or trust before the Tax Cuts and Jobs Act, also known as the TCJA, was enacted or prior to the issuance of IRS regulations on the estate, gift, and generation-skipping transfer tax exclusion amounts, your estate plan may need to be modified. Contact an estate planning attorney for a review of your will, trust, life insurance and any other items in your estate plan that may need revised. Because gifting limits change so frequently, this is an estate planning strategy that requires regular communication with a tax advisor and attorney so you can update your estate plan when necessary based on tax law changes. Find a Tax Professional.When serving as executor of an estate or trustee of a trust, you may need to know the gift tax exemptions for any returns you need to file for the estate or trust. In addition to reviewing the decedent's estate planning documents, you may need to review all accounts, statements, receipts, and other records of the deceased to determine whether any gifts or transfers were made. See estate administration.
Have the Gifting Limits for 2020 Increased?
Although there have been many changes in the area of federal taxes in the past few years, one area that has remained static is the annual gift exclusion amount. If you made gifts based on this exclusion during the 2019 tax year, you may recall the annual exclusion for gifts was $15,000. For those who do not like change, you will be pleased to know that in 2020, the annual exclusion for gifts remains at $15,000. If you were hoping for an increase in the annual gifting limits, you may be let down by this news.If you make gifts in 2020, these gifting limits may be relevant with regard to your federal tax returns filed in 2021 for tax year 2020. Always consult a qualified tax professional with any tax questions or other tax matters. For information on the gift tax annual exclusion amount, estate and gift tax exemption amounts, and tax rates for prior tax years, refer to our section on gifts and gifting.
2020 Gifting Amounts and Exclusions
If you are concerned with estate taxes, gift taxes, and GST taxes in the United States, below are some key dollar amounts for the 2020 tax year: The gift tax exemption amount for 2020 is $11,580,000 for an individual. For purposes of federal tax law, this gift tax exemption is also sometimes referred to as the basic exclusion amount or BEA. This exclusion amount applies to a decedent that passes during 2020. The combined gift tax exemption amount for a married couple in 2020 is $23,160,000 when a portability election is made. These exclusion amounts are for the 2020 tax year for which a return would typically be filed in 2021.The 2020 annual exclusion for gifts is $15,000. Using gift splitting, married couples can gift $30,000 to any person or donee in 2020.
How Much Can a Married Couple Gift in 2020?
Whether you file your tax returns as a single individual filer or as married filing jointly, you may wish to incorporate the annual exclusion for gifts in your estate planning strategy. If you are married and want to engage in gifting with your spouse, let your tax advisor know you would like information on how to do
gift splitting.For the 2020 tax year, if you use gift splitting as a married couple, the limits allow for gifts up to $30,000 from a married couple to any person. Because many people today rely on monetary gifts from family, individuals and couples may have to gift amounts in excess of the annual gifting limits to help a family member. If you do this during the upcoming tax year or have done so in the past, work with a tax professional to file any required gift tax returns or other tax forms. You or your spouse may have made gifts that require a federal Gift Tax Return to be filed.
Current Gifting Limits and Your Estate Plan
If gifting is an important element in your estate plan, be aware the current federal exclusion amounts and gifting limits are not permanent. Federal gifting limits and estate and gift tax exemption amounts in the U.S. change over time for several reasons, such as inflation adjustments and legislative changes. The outcome of the 2020 election could also result in unexpected changes to current tax laws. Exclusion amounts may become more restrictive at any time. It can be advantageous to stay in regular contact with an estate planning attorney about whether your existing plan needs updated. A knowledgeable trust and estates lawyer may be able to assist you in executing your plans in a more tax-efficient manner. Finding an attorney.
Complying with Gift Tax Rules
Whether you are making a gift early in 2020 or plan to wait until the last few months of the 2020 tax year, consult a tax professional about the rules you need to follow. Before making a gift it may be prudent to do the following:1. Keep detailed records of your gifts. Provide adequate documentation to your tax preparer for your tax returns, such as the amount of the gift, the date of the transfer, the recipient, the purpose of the gift, and the type of property gifted. To properly prepare returns for current years, a tax preparer may need copies of your prior year gift tax returns as well as information on gifts you made that were not reported on a prior return.2. A best practice for gifting compliance is to maintain comprehensive records on your gifts and transfers. For example, you may need to review financial statements, account statements, receipts, canceled checks, trade confirmations, property tax statements, invoices, and similar types of documentation when filing a return. Such records can be useful when reporting details about gifts on tax forms.3. Before making a substantial gift or transfer of property, consult an attorney about when to make the gift, the best way to transfer the asset, and tax changes that may impact your gifting strategy. The best method of making the gift may be different depending on whether it is a lump sum gift you plan to make one time or several smaller gifts that will be made over several years. Also, carefully consider whether you want to give up control of the property you plan to gift. A lawyer can advise on how to structure your gifting as part of a comprehensive estate plan. See types of trusts.4. Before you pay educational, medical, nursing home or other expenses for someone else, talk with your tax advisor or attorney to ensure you are aware of any tax implications.5. Ask your tax preparer whether you need to file a gift tax return for 2020 or any prior tax year. If you want to download tax forms such as a U.S. gift tax return form, detailed filing instructions, and related information, many resources are available on the IRS website.All gifting limits and gift tax exclusion amounts listed in this article apply to federal taxes in the United States. This article does not discuss any state taxes that may apply to any individual, estate, inheritance, etc. Consult a tax professional for information on any state taxes that may apply.Published November 18, 2019. Updated April 15, 2020.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.
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