But you don't actually pay tax on taxable gifts until you've surpassed your lifetime exclusion. About 99% of people could gift 100% of their assets and never get a tax bill.
Can I Gift my Parents an Annuity?
- Thread starter Buff Minorcan
- Start date
But you don't actually pay tax on taxable gifts until you've surpassed your lifetime exclusion. About 99% of people could gift 100% of their assets and never get a tax bill.
- Thread starter
- #12
- 264
Not sure this is completely accurate.
I can gift my parents 14k each if I wanted to, but if they file jointly only up to 14k is tax free. If they don't file jointly than it's all good.
If I were married than between myself and my wife we could actually gift them 56k, but I think they run into the same exact problem with only 14k tax free if they file jointly.
It's my understanding the act of filing jointly limits their ability to collect truly gifted funds above 14k.
The person receiving the gift is not subject to any tax...that money has already been taxed (when you earned it).
The whole purpose of the gift tax is to avoid people giving their estates away to non-spouses to avoid estate taxes....that's why the lifetime exclusion is coupled with the estate tax.
What you're looking to do will not create a tax liability for anyone...unless you try to give them more than your lifetime exclusion, which I mentioned in an earlier post.
- Thread starter
- #14
- 264
Yes it will create a tax liability. I fully understand that I am giving post tax funds, but beyond the 14k the person receiving is liable.
If I give my brother 25k, he is tax liable for 11k of that.
If I give him 14k, no tax liability.
If I give all my cousins 14k each, none are tax liable.
If I give my brother 14k and then his wife 14k, they will have to pay taxes on 14k of that because even tho I gifted them individually if they file jointly they can only have up to 14k tax free. Only a married couple that DOESN'T file jointly can receive 14k each and between them have a full 28k that they pay no taxes on.
If I give my brother 25k, he is tax liable for 11k of that.
If I give him 14k, no tax liability.
If I give all my cousins 14k each, none are tax liable.
If I give my brother 14k and then his wife 14k, they will have to pay taxes on 14k of that because even tho I gifted them individually if they file jointly they can only have up to 14k tax free. Only a married couple that DOESN'T file jointly can receive 14k each and between them have a full 28k that they pay no taxes on.
Gifts are not considered income. Maybe I'm misunderstanding what you're asking but in the context of gifting your parents money to purchase an annuity, this is not accurate.
http://www.forbes.com/sites/deborahljacobs/2014/04/09/gift-tax-returns-what-you-need-to-know/
- 10,830
You are misunderstanding how the gift taxes work. The person GIVING is liable for the taxes, not the person receiving.
The yearly exemption for YOU, by yourself, is $14k.
If you were married, then it would be $14k for you and $14k for your spouse.
Again, the person receiving pays no taxes.
To expand on Ray's point, he is correct that the lifetime exemption is $5.4mil. He is also correct that you will most likely owe no taxes.
The way it all works, is that you will file a yearly form with your taxes that shows any amounts over $14k (or $28k if you are married). Then, once you hit the $5.4mil mark, you are then liable for the taxes retroactively.
Even if you likely will not hit the $5.4mil mark in your lifetime, it is still good to know the yearly limits just in case. Especially if you need to go through more advanced estate planning later in life. If this is likely, then it might be smart to split up the payments to stay within the yearly exclusions... if not, then it would not matter.
- 4,686
C'mon Buff....now I know why you're single. You're not listening to what these two experts are telling you! You're disputing and/or misunderstanding them.
- 10,830
If worried about the $14k limit.... couldn't he gift each of them $14k sometime this calendar year, then another $14k in Jan? That totals $56k to put into an annuity. Would go further than $28k. Just a thought.
I'll defer to Ray & SC...
Yep. He could do $14k at the end of Dec and then another $14k beginning of Jan. Since he is single his yearly limit is $14k.
The reason I bring up the yearly limits is because he is likely still fairly young (late 20s or early 30s I would guess based on the parents age). If he is in a position to gift them $30k-$50k, then it is more likely that he will be in a position of needing estate planning when he is his parents age. Why go over if you can avoid it all together... jmo.
Right, but isn't it $14k/yr to each person he gifts?
