In 1933, as an 8-year-old in a large family, my grandfather had no money or physical gifts to give to his mother for Christmas. So, my grandfather used a ripped-off corner of a piece of scrap wax paper to write out a promise of prayers, which scrap paper (unwrapped) my grandfather gave to my great-grandmother for Christmas that year.
In our contemporary society, gift-giving for Christmas is commonplace. Seldom do we think about whether those gifts could incur tax obligations.
There is no gift tax, income tax, inheritance tax or capital gains tax for gift receivers. However, there may be tax obligations for the gift-givers.
Gifts are transfers technically made while the gift-giver is alive. If someone receives a gift from someone who has died, that gift is usually called an “inheritance/bequest.” This column refers to gifts and inheritances (money, real estate or other items) collectively and interchangeably as “gifts.”
If the total of a gift-giver’s lifetime gifts reaches $11.7 million in 2021, any gifts (including inheritances) given after the $11.7 million was given will be subject to federal gift/estate tax.
If any gift-giver gives any other one person more than $15,000 (in cash, gifts, etc.) in 2021, then the gift-giver must file a gift tax return. Even though a gift tax return may be required to be filed, there is no tax due on the gift unless the gift brings the gift-giver’s lifetime gift total above $11.7 million.
If a gift-giver gives any other one person less than $15,000 in 2021, the gift-giver is not even required to file a federal gift tax return. And the gifts that total less than $15,000 in 2021 do not “count toward” the lifetime $11.7 million total that the gift-giver can give tax-free.
As a practical matter, a cup of coffee or an adult beverage is a gift. IRS rules state that those small gifts, birthday gifts and Christmas gifts from one gift-giver to one other gift-receiver can add up to $15,000 in 2021 before the IRS wants the gift-giver to even tell the IRS about the gifts.
In 2022, the lifetime total of gifts that can be given away (before or after death) without tax increases to $12.06 million. The annual amount that one person may give to any other one person without the gift-giver even telling the IRS in 2022 also increases, up to $16,000.
The federal “Build Back Better” bill that passed in the House of Representatives had adjusted the 2022 lifetime gift (total before tax) exclusion to $6 million. However, that bill was not advanced in the Senate in 2021.
In summary, add up the values of all gifts given by one person to any other one person in 2021. If the total is less than $15,000, a gift tax return is not even required to be filed. If the amount exceeds $15,000, a gift tax return is required to be filed, but tax will not be owed unless the gift-giver has given over $11.7 million total since the gift-giver’s birth.
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