Have You Prepared Your 2015 Year End Gift Plan?

With the end of the year fast approaching, now is the time to fine tune your gift planning before you get caught up in the chaos of the holiday season. Aside from making annual exclusion gifts, you can also plan to make gifts that aren’t actually considered gifts for federal gift tax purposes.

Posted on November 1, 2015

Make Preparations for 2015 Annual Exclusion Gifts

One type of gift you can make that isn’t considered a gift for federal gift tax purposes is an annual exclusion gift. In 2015, the annual gift tax exclusion is $14,000 per person and it will remain the same in 2016.

Here’s how the annual exclusion works: money or property gifts of $14,000 or less to the same person in the same year aren’t considered gifts at all (at least for tax purposes – the people receiving these gifts probably appreciate them regardless of how the tax man sees them).

So, you can give up to $14,000 in money or property to as many individuals you choose on or before December 31, 2015, and then another $14,000 to the same people on or after January 1, 2016, and you won’t have to file a federal gift tax return.

You may have heard that married couples can take double advantage of the annual exclusion and gift $28,000 in 2015 and then another $28,000 in 2016. But in some situations, even if a couple limits their gift to the annual exclusion, they may still need to file a gift tax return to report these so-called "split gifts" - they'll need to consult with their estate planning attorney or accountant to be sure.

Make Preparations for Gifts That Qualify for the Medical Exclusion

Another type of transfer that isn’t considered a gift for federal gift tax purposes is a payment that qualifies for the medical exclusion.

A payment made directly to an institution that provides medical care or to a company that provides medical insurance qualifies for this medical exclusion. In general, any medical expense that qualifies for a deduction for federal income tax purposes is eligible for this exclusion.

For example, if you paid $20,000 directly to the hospital for your grandchild's emergency appendectomy on December 15th and gave your grandchild an additional $14,000 by December 31, 2015, you probably won’t have to file a federal gift tax return. You could even give another $14,000 on or after January 1, 2016 and, still not need to file a federal gift tax return.

However, there is one important thing to note – in order to qualify for the medical exclusion, you must make payment directly to the institution providing the medical care or company providing the medical insurance, not to the individual receiving the medical care or insurance benefit. Even if you “earmark” the payment, it cannot pass through the hands of the recipient or it will be considered a gift. Bottom line, don’t give your child $20,000 to pay for that appendectomy, instead pay the hospital directly.

Make Preparations for Payments That Qualify for the Educational Exclusion

Another type of transfer that isn’t considered a gift for federal gift tax purposes is a payment that qualifies for the educational exclusion.

A payment made directly to a qualifying domestic or foreign institution as tuition for the education of an individual is eligible for this educational exclusion.

Therefore, in 2015 in addition to paying for your grandchild’s emergency appendectomy (see above), you can pay for your grandchild's college tuition in the amount of $25,000, give your grandchild an additional $14,000 by December 31, 2015, and then another $14,000 on or after January 1, 2016, and you probably won’t have to file any federal gift tax returns.

There are two important things to remember – in order to qualify for the educational exclusion, (1) You must make payment directly to the institution providing the education, not to the individual receiving the education, and (2) Your payment must be for tuition only, not for books, supplies, room and board, or other types of education-related expenses, otherwise the payment won’t be considered a gift. Just like we saw for the medical exclusion, don’t give your child $25,000 to pay for your grandchild’s winter semester at college, instead pay the college directly.

Have Questions About Year End Gifting?

Our firm is ready to answer your questions about year-end gift planning. Please call our office to arrange for a convenient time for us to speak.

More from our blog…

Do I Need a Professional Patient Advocate?

August 5th, 2022|

Individuals experiencing illnesses can benefit from having someone attend appointments with them and support their best interests. Often, close friends or family take on this [...]

Recent blog posts