If you’ve just started putting your estate plan together, then you likely have a lot of questions. Don’t worry. You’re not alone. Properly laying out an estate plan takes time and a lot of effort on your part. It also requires a deep understanding of the law as well, which is not something everyone has. Questions, therefore, are a natural part of establishing an estate plan – questions that are best directed toward an experienced estate planning attorney.
One such question that gets asked time and again is: How do annual gift exclusions work? To answer this question, let’s first look at what constitutes an excludable gift and what this means when it comes time to pay estate taxes.
According to the IRS, something is considered to be a gift if it was transferred to another individual with nothing having been received in return. Anything that is not considered a gift is typically taxed then per federal law. Gifts that are excluded from tax include:
- Donations to political organizations for their own use
- Medical expenses or tuition paid on behalf of someone else
- Gifts given to a spouse
- Gift amounts that do not exceed the annual exclusion amount set for that calendar year
But what is the annual exclusion amount and how does it work? As you may or may not know, the annual exclusion is a set amount that can change from year to year. Any gift amount that falls at or below this amount is not counted when calculating an individual’s tax obligation. For the 2015 calendar year, the annual exclusion is $14,000. Any gifts given over this amount are subject to gift tax.
