The federal gift tax breaks subject to inflation indexing barely budged this past year. But not to worry: For most clients, it’s still relatively easy to avoid any dire gift tax consequences, with plenty of room to spare.
The two main tax breaks your clients may benefit from are the annual gift tax exclusion and the unified estate and gift tax exemption.
1. Annual gift tax exclusion. Under the annual gift tax exclusion, you can give gifts of cash or property to someone up to a specified amount without paying any federal gift tax. The annual exclusion for gifts made in 2016 is $14,000 per recipient – the same as it was in 2015. This exclusion amount is raised only in increments of $1,000, so it takes a big boost in the inflation rate to move it year-to-year. (It was last raised from $13,000 in 2013.)
Nevertheless, the annual gift tax exclusion enables you to reduce your taxable estate in short order. For example, you can give up to $14,000 free of gift tax to several recipients this year, possibly including your children and grandchildren. What’s more, the annual $14,000 exclusion is doubled for “split gifts” made by a married couple. Thus, if you and your spouse have five grandchildren, you can give each one of them $28,000 in 2016, for a grand total of $140,000 ($28,000 x 5) in tax-free gifts.