YEAR-END GIVING

By Kirk R. Wilson, J.D., LL.M.

As we approach the year’s end, our thoughts turn to last-minute shopping for holiday gifts and making gifts to family, friends and our favorite charities. Most of the gifts we make have no tax consequences, but if we are making larger gifts or gifts to charity, it is important to be aware of the tax law requirements. The federal gift tax law allows individuals to make gifts of up to $14,000 per year to any number of persons without tax consequences. For such gifts there is no gift tax payable by the donor and these gifts are not taxable income to the recipients. However, if you make gifts to an individual during the year which have a combined value of more than the $14,000 annual gift tax exclusion amount, federal law requires you to file a gift tax return by April 15th of the following year to report these gifts using IRS Form 709. Gift tax returns allow the IRS to keep a running record of a person’s lifetime “taxable” gifts, i.e. gifts exceeding the $14,000-per-donee annual gift tax exclusion amount. This exclusion is indexed for inflation but will remain at $14,000 in 2015. The good news is that each U.S. citizen has a lifetime gift tax exemption of $5 million, which is indexed for inflation (and is $5.34 million this year). So if you do make a “taxable” gift, i.e., a gift over $14,000, and you file a gift tax return, the effect is to reduce your lifetime exemption by the “taxable” amount of the gift. Until you use up your full lifetime exemption, you will pay no tax on your “taxable” gifts. However, since we have a unified gift and estate tax exemption, at the time of your death, your estate tax exemption will be reduced by the amount of your lifetime “taxable” gifts. So if you leave an estate larger than the amount of your remaining estate tax exemption, your lifetime “taxable” gifts will be taxed in your estate. But if the value of your estate is less than your remaining exemption, there will be no gift or estate tax assessed against your estate. So, if your estate is under $5.34 million (or $10.68 million for a married couple) you can safely make annual gifts to individuals in excess of $14,000 without any tax consequences (except for the requirement of filing gift tax returns). Also, the $14,000 annual exclusion does not apply to gifts to your spouse, so you can be as generous as you wish. For gifts to charities, the IRS has a number of requirements to qualify gifts for the charitable income tax deduction. To deduct a charitable donation of money, if the total amount given to a charity for the year is less than $250, you will need a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. If the cash gift to charity is more than $250, you will need both a bank record and a written acknowledgment from the charity. However, one statement containing all of the required information may meet both requirements. Donations charged to a credit card before the end of 2014 count for 2014. This is true even if the credit card bill isn’t paid until 2015. Also, checks to a charity count for 2014 as long as they are mailed in 2014. For all non-cash gifts, donors must get a written receipt from the charity that includes, among other things, a description of the items contributed, in order to claim a charitable deduction. If the value of a non-cash gift exceeds $250, additional recordkeeping is required, and when the value exceeds $5,000, an appraisal is needed. When you donate appreciated stock or property, as long as you have owned the asset for more than one year, you get a double tax benefit from the donation: You can deduct the property’s market value on the date of the gift and you avoid paying capital gains tax on the built-up appreciation. Detailed information regarding the requirements for charitable gifts can be found in IRS Publication 526 (2013), Charitable Contributions, which is available online.

[The author is a Woodlands-based estate planning attorney at the firm of O’Donnell, Ferebee, Medley & Frazer, P.C. He is licensed to practice law in Texas and California, is a board-certified probate, estate planning and trust law specialist in California, and holds an advanced law degree (LL.M.) in taxation. He can be reached at (281) 875-8200. The firm’s website is www.ofmflaw.com.]

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