I live in Sioux Falls and want to make some gifts to my children and grandchildren. What type of gifts are subject to the federal gift tax?

Any property or assets given as a gift (including money) are subject to the federal gift tax.  However, there are numerous exceptions.  Here are some ways you can transfer assets without incurring gift taxes:

  • Give an unlimited number of people gifts up to $14,000 each per year ($28,000 if you're married). These gifts are called annual exclusion gifts.
  • Pay any amount toward another person's tuition or medical expenses, as long as you pay these amounts directly to the school or medical provider.
  • Give any amount to your spouse.
  • Give any amount to charity.

If you make contributions to a Section 529 college savings plan or prepaid tuition plan on behalf of another person, you can contribute up to five years of annual exclusion gifts, or $70,000, in a single year ($140,000 if you're married), provided that you make the proper election on a timely filed gift tax return.  If the election is made, then any additional gifts over the annual exclusion amount to that individual during the five-year period will be subject to gift tax.  If you die before the end of the five-year period, a prorated portion of your gift will be subject to estate tax.

Even if you make a taxable gift, you don't have to pay tax until you exhaust your gift tax exemption amount.  This exemption currently allows for $5.25 million of taxable gifts to be made during your lifetime before a tax payment is required.

You should always consult with your tax advisor so that your overall circumstances can be taken into consideration and that you're properly reporting the gifts.

Source:  The Vanguard Group, Inc.