The holiday season is a time of joy and gift giving. As you prepare your year-end gifts, here are some things to consider for tax purposes. A gift is any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return. The general rule is that any gift is a taxable gift if it exceeds the annual gift limitation ($16,000 in 2022). However, there are many exceptions to this general rule. For example, tuition or medical expenses you pay directly to the school or medical facility are not taxable gifts. Another common exception is spousal gifts, which generally are never taxable.
One important thing to consider in making year-end gifts is the annual gift tax exclusion. The annual exclusion applies to gifts to each gift recipient. In other words, if you give each of your children $16,000 in 2022, the annual exclusion applies to each gift. Any amount you give them over the $16,000 limit would need to be reported on a gift tax return. One workaround is that you can give joint gifts with your spouse to a recipient which doubles the annual exemption to $32,000. The annual gift tax exclusion will increase to $17,000 in 2023.
If any of the plans discussed in this article seem attractive or spur further questions, please reach out to a financial planner or tax professional at FCA Corp. We wish everyone a happy and healthy holiday season!