The Gift Tax: Use It or Lose It
Make people happy while you're still around to hear "thank you"...
Giving gifts to family and friends during your lifetime permanently removes money or other assets from your estate, reducing any future estate tax. Under current law, only the wealthiest Americans need to worry about the federal estate tax, but those limits expire at the end of 2012. So even taxpayers of more modest means may want to take full advantage of the annual gift-tax exclusion -- because once the year is over, your 2011 exclusion is gone forever.
You can give up to $13,000 to as many people as you want in 2011 without filing a gift-tax return. And you and your spouse can give up to $26,000 to anyone you wish.
If you give a gift that exceeds the annual exclusion amount, you'll have to keep track of your largesse by filing a gift-tax return -- Form 709. Gift taxes are paid by the grantor, not the recipient.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There's a special exception for contributing to a 529 college savings plan: You can contribute up to $65,000 to a 529 college savings plan for your child, grandchildren or other recipient and spread the contribution over five years tax-free. But you must file a gift tax Form 709 to document the spread.
You don't get an income-tax deduction for such gifts, but there's an important advantage: Assets given away during your life -- and any future appreciation -- won't be included in your estate to be taxed after you die.
But taxes are seldom owed, even on substantial gifts. Everyone gets a credit that exempts up to $5 million of taxable gifts over your lifetime ($10 million for married couples). The tiny fraction of estates that do trigger the tax are taxed at a flat rate of 35%.
However, the lifetime exemption drops to the previous limit of $1 million and the tax rate jumps to 55% in 2013 unless Congress comes up with a new deal. Another provision of the law -- the portability feature which allows the surviving member of a couple to claim any unused portion of the exemption -- is set to disappear in 2013 as well.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Retire in Costa Rica With These Three Tax Benefits
Retirement Taxes Costa Rica may be a good place for retirement if you like the low cost of living and savings for your heirs.
By Kate Schubel Published
-
Five Ways to Ease Caregiver Stress
Caregiver stress is real. Here are five techniques to protect your health and happiness while caring for a loved one.
By MP Dunleavey Published
-
Retire in Costa Rica With These Three Tax Benefits
Retirement Taxes Costa Rica may be a good place for retirement if you like the low cost of living and savings for your heirs.
By Kate Schubel Published
-
Ten IRS Audit Red Flags for Self-Employed Individuals
IRS Audits Taxpayers who file Schedule C with their Form 1040 have a greater chance of an IRS audit
By Joy Taylor Published
-
Trump Wants You Out of the IRS, But You'll Have to Wait Until May
IRS Some IRS employees won’t be able to resign using the buyout offer until the end of tax season.
By Gabriella Cruz-Martínez Published
-
Are Tips Taxable in 2025? Understanding the IRS Rules
Taxable Income With all the recent talk about ending federal taxes on tips, some wonder whether tips are taxable income.
By Gabriella Cruz-Martínez Published
-
What's Going on With New Jersey Property Tax Programs?
Property Tax ANCHOR and ‘Senior Freeze’ just got a refresh, and there’s a new program: Stay NJ. Learn how to save on New Jersey property taxes.
By Kate Schubel Published
-
States That Won't Tax Your Retirement Income in 2025
Retirement Taxes Several states don’t tax Social Security benefits, 401(k)s, IRAs, and pensions. But you may still have to pay state taxes on some incomes.
By Kate Schubel Published
-
Navigating 1099s: A Guide to All 22 IRS Tax Forms to Know
Tax Filing You should receive your 1099 form by February 15. But what happens next?
By Kate Schubel Published
-
Five States With the Largest EITC Checks
EITC Households in these states received a larger Earned Income Tax Credit (EITC) last year.
By Gabriella Cruz-Martínez Published