Gifting is a good way to reduce the size of your estate if estate taxes are a concern. For tax purposes, gifts made while you are alive are considered part of your estate, with the exception of property that falls under an exclusion. If you gift more per year than the annual gift tax exclusion amount, the amount gifted that exceeds the annual exclusion amount is subtracted from your lifetime estate tax exclusion amount.
For 2018, the lifetime federal gift tax exemption amount is $11,180,000 per person. This substantial increase in the exemption amount is based on enactment of the Tax Cuts and Jobs Act of 2017.For 2017, the lifetime federal gift tax exemption amount is $5,490,000, with a top gift tax rate of 40 percent.
For 2016, the lifetime federal gift tax exemption amount is $5,450,000, with a top gift tax rate of 40 percent.For 2015, the lifetime federal gift tax exemption amount is $5,430,000, with a top gift tax rate of 40 percent.You are required to file a Gift Tax Return for giving away more than the annual exclusion amount, but no gift tax is due until you exceed the lifetime gift exclusion amount.Even if tax applies to your gifts, it may be eliminated by the unified credit.A husband and wife can each give away the annual gift exclusion amount tax free to any number of donees they wish. Other ways you can give away money or property tax free include:1. Gifts to your spouse who is a U.S. citizen. There is a Marital Deduction from federal estate and gift tax for gifted property that qualifies for the marital deduction.2. Paying tuition or medical expenses for another person, provided you make payment directly to the educational institution or medical facility.3. Donations to qualified charities. See charitable giving.For information about the gift tax exemption amount for 2019, 2018, 2017, 2016, 2015, and 2014, see gifting limits.
Share Your Cost Basis in Gifted Stock
When you gift stock, you should give the donee information regarding your purchase of the stock so they can retain it for their tax records. Provide the donee the following information: a. your cost basis; b. the date you purchased it; c. the value on the date of the gift; and d. your holding period. If you purchased the shares on multiple dates, provide the donee a record of all of dates of purchase, the number of shares purchased on each date, and your cost basis. To avoid giving the gift of a tax return nightmare, it is essential to provide the donee all information necessary for tax filings, including copies of trade confirmations or other supporting documentation.Under current tax laws, the donee will owe tax on the difference between the donor’s cost basis and the value of the stock when the donee sells it, including reinvested dividends. Thus, the donee pays the capital gains tax for appreciation of the stock during the time it was owned by the donor and the donee. Tax laws change frequently. Talk with a tax advisor to determine taxes that may be owed. Find a Tax Professional.
Tax Benefits of Charitable Giving
People engage in charitable giving for a variety of reasons. Some give regularly to their church or place of worship as part of religious tithing. Others are members of non-profit organizations and make annual tax-deductible membership contributions. Some give periodically when there is a disaster or tragedy and they want to help in a time of need. Others give as part of a tax-savings strategy to reduce their taxable income, while some make charitable gifts as part of legacy planning, such as to their college or university.
Whatever your motivation for charitable giving, it is important to ensure you are doing it the best way possible. There are a variety of strategies to make your donations and some may benefit you more than others, as well as benefiting your charity of choice. Many charitable and non-profit organizations have representatives that can advise you on different planned giving options, such as a charitable gift annuity, as well as how each option may impact your taxes or estate plan. Because tax laws change frequently, check with an accountant or tax advisor before making any charitable gift or donation for which you plan to claim a deduction.
Gifts to Minors and College Savings Plans
Grandparents, other family members, and friends often use Uniform Transfers to Minors Act accounts, called UTMAs, or Uniform Gifts to Minors Act accounts, called UGMAs, to gift money, stock, and other types of property to minor children in a way that will help them pay for a first home, start a business, cover emergency medical expenses or otherwise provide financial security. Contributions can also be made to 529 plan accounts to fund a child's college education. To learn how to gift assets to minor children as part of your estate plan, see college funds, gifts to minors UTMA, and minor's trust.
2019 Gifting Limits
If you want to begin giving away part of your estate now instead of waiting for your heirs to inherit, you can take advantage of the substantial exemption amounts in 2019. The annual gift tax exclusion is $15,000 for 2019.
For details on the amounts that can be gifted tax-free, review the
2019 Gifting Limits.
2018 Gifting Limits
There are significant changes to the amounts you can gift for tax year 2018. This is the first time in several years that the annual gifting limits have increased. For more on the changes, go to
2018 Gifting Limits.
2017 Gifting Limits
In 2017, the amount a donor can give to any individual without paying federal gift tax is 14,000 USD, known as the annual gift tax exclusion amount. In 2017, a married couple can give up to 28,000 USD to any individual without owing any federal gift tax. Individuals interested in reducing the size of their estate for estate tax purposes often gift the maximum annual amount to the spouses of their adult children as well. To continue reading, go to 2017 Gifting Limits.
2016 Gifting Limits
In 2016, the amount a donor can give to any individual without paying federal gift tax is 14,000 USD, known as the annual gift tax exclusion amount. In 2016, a married couple can give up to 28,000 USD to any individual without owing any federal gift tax.
2015 Gifting Limits
In 2015, the amount a donor can give to any individual without paying federal gift tax is 14,000 USD. In 2015, a married couple can give up to 28,000 USD to any individual without owing any federal gift tax.
Gifting Stock to Children
There are many reasons to gift stock to your adult children. Perhaps you want to get your son or daughter interested in investing. Maybe you want to help your adult child through some financial difficulties or with a major purchase. You may want to reduce the size of your estate as part of an estate tax strategy. However, before you make this benevolent gesture, be sure you understand how the gift of stock will affect your taxes and those of your child. See How to
Gift Stock to Children.When you make a gift of stock to your child, you are the donor and your child is called the donee. If the stock you intend to gift has increased in value since you bought it, you can give it away without paying capital gains taxes. When the donee receives the stock, he or she does not pay income or gift taxes on the gift. If gift taxes are owed, they are owed by the donor.If you will be gifting stock to your child, be aware the kiddie tax may apply to the child’s unearned income, consisting of dividends, capital gains, interest, etc., above a certain amount. Before making any gift that may be taxable, be sure to consult a tax advisor. Also, ask your advisor whether you will need to file a Gift Tax Return and for information on gift splitting if you are married.Your Gift of Stock is Not Tax DeductibleWhile you may be able to claim a deduction for a gift of stock to a qualified charity as part of a charitable giving strategy in some circumstances, gifts of stock to your children do not qualify for a deduction. For a list of tax resources, go to Estate Tax Books.
How to Gift Stock to Your Child
After you decide you want to gift the stock, you must transfer title to your son or daughter. There are two ways to do this, depending on how you currently hold title to the stock:
If you have a physical stock certificate, you must properly endorse the certificate and sign it over to the donee. All registered owners of the stock must endorse the certificate exactly as their name appears on the certificate. A stock power form may also be used. The owner’s signature must be guaranteed with a medallion signature stamp which should be available from your investment firm, bank or other financial institution. If your child is a minor, you will need to follow special rules applicable to minors owning stock, such as having the stock held by a custodian. Do NOT sign the stock certificate without assistance from a stockbroker, financial advisor, or banker. It is very important to properly endorse the certificate to ensure the transfer of title is effective. It is easy to make a mistake when signing a stock certificate, so do it in the presence of a professional that can assist you.
If you hold the stock in your brokerage account and do not have a physical stock certificate, you will need your adult son or daughter’s brokerage account number, brokerage firm name, and the exact name on their brokerage account. You will need to give this information to your brokerage firm and fill out their form for transferring title to the stock. The brokerage firm can move the stock from your brokerage account to theirs. If your son or daughter does not currently have a brokerage account, they will need to open one so the stock can be transferred. The easiest way to facilitate the transfer is to have their account opened at the same brokerage firm where you hold the stock.
If your child is a minor, discuss with your financial advisor how you can open a custodial account to hold the shares for your child. For help with this, go to
find a financial planner.
Gift and GST Tax Return Form
If you made gifts or transfers that need to be reported to the IRS, you can find information on the tax forms and instructions on our Gift Tax Return page.A free copy of Form 709 U.S. Gift and Generation Skipping Transfer Tax Return Form is available on the IRS website.This page was updated on December 1, 2018.
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