Gift Tax Essay

It’s important to recognize that there are several categories of gifts that are not subject to the gift tax. This include charitable contributions, gift to a spouse, gifts to a political organization, and tuition or medical payments made on behalf of someone else.

In the addition to the above, there is an annual gift tax exclusion that currently stands at $13K/recipient. In other words, you are allowed to give away up to $13K worth of gifts per recipient to as many recipients as you wish in a given year without any tax ramifications. Note that this limit is effectively doubled for married couples, who can jointly gifts up to $26K/year total to a single recipient.

There is also a second, $1M lifetime limit of gifts in excess of the $13k annual

Beyond that exemption, donors must pay gift tax equal to 41 percent of the first $500,000 and 45 percent of any excess. The tax rate is reduced to 35 percent in 2011 and 2012 respectively. An additional amount each year is also exempted from both the tax and the lifetime exemption. The exemption of $13,000 in 2011 is indexed for inflation of $1,000 increments and is granted separately for each recipient. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 does allow the unused portion of the exemption from a decedent to be used by the estate of the surviving spouse on their subsequent death. This is called portability and is limited for the 2011 and 2012 tax years unless Congress acts to expand this provision in the future. After 2012, if no legislation has been enacted, the exemption will revert to $1,000,000. Each year an individual may transfer $13,000 of property per beneficiary without paying gift taxes on such transfer. Any transfer over the $13,000 exclusion is subject to gift tax. However, a donor can make direct transfers to qualified medical and education institutions for the benefit of a beneficiary’s education and medical benefits without being subject to a gift