by Philo Gabriel

Created on: March 06, 2010

Many people assume that when a gift tax is owed, it is the recipient of the gift that has to pay it, on the theory that it’s a form of income for the recipient.  In fact, however, when a gift tax is assessed, it is the giver of the gift who owes it.  But let’s take a look at some more gift tax basics:

One point, as you’ll infer from what follows, is that you have to be pretty darn rich for the gift tax ever to be an issue.  If your net worth isn’t somewhere in the millions, it’s unlikely you’ll ever have to worry about paying a gift tax.

The relevant figures change over time, but I’ll use the ones that happen to be in place now.  (Any change will likely be incremental increases.)

If you give someone gifts of $13,000 or less in a year, you’re fine.  No gift tax, nothing to report.

If you give a person more than that in a year, then that amount over $13,000 must be reported.  Because you have to pay tax on it?  No, not yet, and probably not ever.  But you have to keep track of that excess year by year, and if and when it’s cumulatively over $1,000,000 lifetime, that’s when the gift tax kicks in.

So, for example, let’s say you are unusually generous with your close friend Anna Nicole over the course of many years, giving her the following amounts year by year:

2000: $10,000

2001: $55,000

2002: 0

2003: $2,500

2004: $180,000

2005: $22,000

2006: 0

2007: $15,000

2008: $200,000

2009: $8,000

OK, so what are the gift tax implications of these figures?  (I’m going to oversimplify here and assume the limit was always $13,000 just to make the math easier.  Actually it was $12,000 or less in some of these years.)

Five of the years can be ignored entirely, because $13,000 or less was given in each of them.  These would be 2000, 2002, 2003, 2006, and 2009.

For the other five years, you look only at the excess above $13,000.  That would be:

2001: $42,000

2004: $167,000

2005: $9,000

2007: $2,000

2008: $187,000

If we total these up, we get $407,000.  (Again, the actual figure would be slightly higher if we were being exact and taking into account that the minimum was less than $13,000 some of those earlier years.)  You still would owe zero in gift tax.  You’re not even halfway to the $1,000,000 in fact.

So, as I say, extremely few people ever have to think about the gift tax.

A few more quick points:

* What is a “gift”

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