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I Can’t Give My Child More Than $14,000 This Year: True or False?

False, by a long shot.

The government does not restrict how much you can give away. Instead, if you make “taxable gifts”, you may have to file a gift tax return, and for very large gifts, pay a gift tax.

Taxable gifts means gifts that aren’t excluded by the Federal Gift Tax statute and for which no gift tax deduction is applicable (deductions are available only for gifts to a spouse or to charity).

The following gifts to individuals are excluded:  

  • The first $14,000 (periodically adjusted for inflation) of gifts from any individual to another in any year. If you and your spouse consent, one half of any gift you make in any year can be considered to have been made by your spouse, doubling the amount of the annual exclusion.  So, you and your spouse can give your child up to $28,000 per year without the gift being considered a taxable gift.
  • Direct tuition payments to an educational institution for any individual.
  • Payments to any individual or entity who provides medical care for any individual.

The educational and medical exclusions are not limited by the annual exclusion.

During your lifetime you can make “taxable gifts” of up to the estate tax basic exclusion amount (“Exclusion Amount”)–$5,450,000 in 2016, and annually adjusted for inflation–without incurring any Federal Gift Tax liability.  Taxable gifts are added back to your estate at your death for Federal Estate Tax purposes.  You get credit against your Federal Estate Tax for any Federal Gift Taxes paid, and, if your survive your spouse, your Exclusion Amount for Federal Estate Tax purposes may be increased by your spouse’s unused Exclusion Amount.

Example:  During 2016, you and your spouse give your child $20,000 in total direct gifts, pay your child’s college $50,000 for tuition and pay your child’s doctor $1,000 for treating your child. None of those amounts would be a taxable gift (assuming that you and your spouse elected to each treat one-half of the $20,000 as made by each of you), none would require you to file a Federal Gift Tax return and none would be added back to your estate for Federal Estate Tax purposes in calculating your Federal Estate Tax.  However, if you and your spouse gave your child $29,000 in direct gifts, you would have made a $1,000 ($29,000-$28,000) taxable gift for 2016 and would have to file a Federal Gift Tax return to report the gift, which eats away at your remaining available Exclusion Amount.

Each child is treated separately for purposes of the preceding example.  That significantly multiplies what parents with more than one child can give away without making a taxable gift.

True or false? If I already gave my child $14,000 this year (and I am unmarried or my spouse didn’t consent to joining in the gift), I need to file a gift tax return for the $100 gift card I gave her for her birthday.