A gift is the act of giving something to another person without expecting anything in return. It can be an item or property that is passed from one person to another. There are various types of gifts, including charitable gifts that are given to nonprofit organisations to benefit the community, and inter vivos gifts that are given while the giver is still alive. A split gift occurs when a married couple combines their gift tax exclusions to give a larger gift. A gift-splitting election is when both spouses agree to split the gift for tax purposes.
A gift-splitting election is a tax strategy utilised by married couples to merge their yearly gift-tax exclusions and present a gift to a third party. This implies that both spouses consider the gift as if it were given equally by each spouse, allowing the gift to qualify for two yearly exclusions instead of one. For instance, if the yearly exclusion is $15,000, a married couple can give a gift of up to $30,000 to a third party without incurring gift tax. For example, John and Jane are married and wish to give their son a gift of $25,000. They can opt for gift-splitting and consider the gift as if each of them contributed $12,500, which falls below the annual exclusion threshold. Consequently, they can avoid paying gift tax on the gift. This tax strategy is beneficial for married couples who desire to present a substantial gift to a third party without incurring gift tax. By merging their yearly exclusions, they can make a larger gift without being liable for taxes on it.
A gift-splitting election is a tax planning strategy that allows married couples to combine their individual gift tax exclusions to make larger tax-free gifts. By electing gift-splitting, both spouses can effectively double the amount of gifts they can give without incurring gift tax.
Under gift-splitting, one spouse can make a gift to a third party and elect to treat it as if it were made equally by both spouses. This means that the gift is considered to be made half by each spouse, allowing them to utilize both of their individual gift tax exclusions.
Yes, there are certain limitations on gift-splitting. Both spouses must be U.S. citizens or residents, and they must be married to each other at the time of the gift. Additionally, the gift must be made to a third party, and both spouses must consent to the election.
Gift-splitting can be used for most types of gifts, including cash, property, or investments. However, it cannot be used for gifts that are excluded from gift tax, such as gifts to a spouse or donations to qualified charities.
No, there is no specific limit on the amount that can be gifted through gift-splitting. However, the total amount of the gift will be subject to the annual gift tax exclusion limit, which is $15,000 per recipient in 2021.
Gift-splitting itself does not have any immediate tax consequences. However, if the total amount of the gift exceeds the annual gift tax exclusion limit, the excess amount may be subject to gift tax. It is important to consult with a tax professional to understand the potential tax implications.
Gift-splitting can be used as an estate planning strategy to reduce potential estate taxes. By making larger tax-free gifts during their lifetime, married couples can effectively transfer wealth and reduce the value of their taxable estate.
No, gift-splitting is only available to married couples. Unmarried couples cannot utilize gift-splitting to combine their individual gift tax exclusions.
No, gift-splitting must be elected in the year the gift is made. It cannot be applied retroactively to gifts made in previous years.
Yes, to make a gift-splitting election, you need to file a federal gift tax return (Form 709) and indicate the election on the return. Both spouses must sign the return to consent to the gift-splitting election.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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