With only two weeks until Christmas, gifts seem to be high on everyone’s
radar. While this article is about gift-giving, it’s not necessarily about
those presents wrapped under the tree. Gifts, in the IRS’ mind, qualify as any
transfer made without receiving full (or any) value in return. The gift tax is
applied on these transfers, whether or not the giver intends for it to be a
gift. This might sound like a damper on the holiday season, but the gift tax
may not be exactly what you expect.
The Basics
The
federal government imposes a substantial tax on gifts of money or property
above certain levels. Without such a tax, someone with a sizable estate could
give away a large portion of their property before death and escape estate
taxes altogether. For this reason, the gift tax acts more or less as a backstop
to the estate tax. Yet few people actually pay a gift tax during their
lifetime. A gift program can substantially reduce overall transfer taxes;
however, it requires good planning and a commitment to proceed with the gifts.
