One great technique to get assets out of your estate to save income taxes and to save estate taxes is to give gifts to another. Here are seven things you need to know about US gift taxes and reporting of foreign gifts you might receive.
- If you give any individual (resident or nonresident) less than $14,000 US during a calendar year you do not have to file a Gift Tax Return form 709.
- If you give any individual more than $14,000 US (this includes cash and value of property, assets, intangibles, etc) you need to file a gift tax return with the IRS which is due 4/15 following end of Calendar year. This includes gifts of assets located outside of the USA.
- If your gift exceeds the $14,000, you may need to file the return but probably do not owe taxes since you have a combined lifetime gift/estate tax exclusion of $5.43 million. The excess value of the gift above the $14,000 will be offset by this lifetime exclusion. If you use up this exclusion on gifts while you are alive it will not be available for use by your estate after your death.
- Contributions to IRS recognized charities are not the type of gift subject to gift tax
- If you as a citizen or permanent resident receive $100,000 in fair market value of assets as a gift or inheritance in one calendar year (total for year from one individual or related individuals) you must file form 3520. If the gift is from a foreign corporation or LLC .you must file that form if the total gifts received during the year exceeds $15,601. If you receive any amount from a foreign trust you must file the form 3520. The form must be filed on 4/15 following the end of the calendar year. Failure to do so can subject you to a substantial monetary penalty.
- Nonresidents are subject to gift taxes for transfer of assets located in the USA. Therefore best to make gifts if you are a nonresident from assets located outside of the USA. A nonresident must pay gift tax on any gift of US located property of more than $14,000 to a single person per year. This figure is an aggregate of all gifts during the year.
- If you receive anything in return (including services, etc) it is not a gift. Also reciprocal gifts are also disallowed for US gift tax exemption purposes ( i.e. you give $14,000 to my kid and then I will give $14,000 in return to your kid).
There are more gift rules applicable to special situations not mentioned here such as those covering gifts to US persons after you have surrendered your citizenship or long term green card. You should consult an gift tax expert before you make any gift that might be subject to tax to be certain there are not special rules that may surprise you when it becomes time to report the gift to the IRS. If you need help email us at ddnelson@gmail.com or phone (US) 949-480-1235.
