- After staying the same for five years, the amount you can give away to any one individual in a particular year without reporting the gift will increase in 2018.
The annual gift tax exclusion for 2018 is rising from $14,000 to $15,000. This means that any person who gives away $15,000 or less to any one individual (anyone other than their spouse) does not have to report the gift or gifts to the IRS. Client's often refer to this as the $10,000 annual gift but in fact this threshold is adjusted for inflation which is how it is now fixed at $15,000.
If you give away more than $15,000, you do not necessary have to pay taxes, but you will have to file a gift tax return (Form 709) and it may impact the threshold for the Massachusetts Estate Tax. The IRS allows individuals to give away a total of $11.2 million and couples $22.4 million (in 2018) during their lifetimes before a gift tax is owed. This $11.2 million exclusion means that even if you have to file a gift tax return (Form 709) because you gave away more than $15,000 to any one person in a particular year, you will owe taxes only if you have given away more than a total of $11.2 million (or $22.4 million) in the past. As a result, the filing of a gift tax return is merely a formality for nearly everyone.
The gift tax also applies to property other than money, such as stock. If you give away property that is worth more than $15,000 you have to report that on your gift return.
Note that gifts to a spouse are usually not subject to any federal gift taxes as long as the spouse is a U.S. citizen. If your spouse is not a U.S. citizen, you can give only $152,000 without reporting the gift (in 2018). Anything over that amount has to be reported on the gift tax return. Also, you do not need to report tax deductible gifts made to charities on a gift tax return unless you retain some interest in the gifted property.
With the increase in the gift tax, the amount you can give to an ABLE account is also increasing to $15,000. ABLE accounts allow people with disabilities and their families to save up to $100,000 in accounts for disability related expenses without jeopardizing their eligibility for Medicaid, Supplemental Security Income (SSI), and other government benefits.
While there can be many tax saving benefits from utilizing annual gifting options each year, its important to factor in the consequences gifting will have on future MassHealth eligibility (MassHealth doesn't recognize a non-gift threshold of $15,000 like the IRS does) and the fact that gifts of assets result in a potentially lost opportunity to get a stepped up basis in those assets on death potentially increasing future income tax costs.