The Elrod Firm

ASK THE PROS

How Can I Get Around The Gift Tax?

Justin, I want to give some money to my grandson to help him with college, but I heard that I have to keep it under $14,000 or he’ll have to pay taxes on that money. Is there any way around that? – Jerry

Jerry, as a general rule, your grandson should not report any gift from you on his income tax return, no matter how large. Gifted money is not the same as income, but your question hits on a common point of confusion.

The recipient of a gift should never have to report that gift as income on his or her tax return, assuming it was really a gift and not, for instance, payment for services. On the other hand, you’d probably be surprised to learn that there is a gift tax that could be imposed on the person making a gift. It is similar to the estate tax, which if applicable is imposed on the estate of the deceased person and not on the recipient of the inheritance.

However, the majority of my clients have no reason to worry about the gift tax or the estate tax because neither tax is imposed until a person either gifts or leaves as an inheritance assets in excess of around $5.5 million. The $14,000 figure you heard is only a reporting limit; gifts exceeding $14,000 per person per year must be reported on a gift tax return, but no tax is due until lifetime reportable gifts exceed around $5.5 million.

For most families, the gift and estate tax is just a distraction from planning issues that matter far more. Chapter four of You Need A Plan, written by my colleague, Justin Elrod, goes into more detail on that topic, and the chapters that follow get into tax issues that are more important to most planners. You can order a free copy of the book at YourPlanMatters.com. And don’t forget, a no-charge strategy session is just a phone call away.

Are you in a similar situation?

We can help you navigate your unique circumstance.

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