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Financial Planning / Tax Strategies


Subject:  Tax Tip Date:  4/16/2001  8:53 AM
Author:  AHOLLYS Number:  50331 of 130843

Tax Tip
Today is April 16!
April 16, 2001
I know that I can give $10,000 in tax-free gifts to each of my children each year. Where do I deduct these gifts?

You cannot deduct these gifts, and your children don't pay income tax on them. The $10,000 annual gift tax exclusion doesn't mean you get to deduct your gifts; it means you don't have to report them for gift tax purposes. The unified gift and estate tax prevents people from avoiding taxation by giving away all their assets before death. The gifts you make during your lifetime are combined with the value of your property at death to compute how much tax, if any, is due on the combined value. A big exception protects most of us: You can give up to $10,000 in gifts per individual per year, to any number of individuals, and simply ignore all of these gifts for gift tax purposes. Moreover, amounts you pay for another individual's tuition directly to a qualified education institution or medical expenses directly to the provider are not counted as gifts. If you give more than $10,000 to any individual for any year, or make a gift that takes effect in the future, you will have to file Form 709, United States Gift Tax Return. Even then, you may not owe any gift tax. A unified gift and estate tax credit offsets the tax on the first $675,000 of taxable gifts or estate value for 2000. This ceiling on the credit is scheduled to gradually increase until it reaches $1 million in 2006.

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