Please explain the exclusion for gifts to a child.

August 15, 2011

From:  Kevin
Date:  Sun, 14 Mar 2010
Subject:  transferring stock

Please explain the exclusion for gifts to a child. Is it an income tax exclusion?



Date:  9 Apr 2010

Hello Kevin,

No. True gifts without a business connection aren't subject to income tax. There is a separate federal gift tax, and some states may also have gift taxes. For 2009 and 2010, up to $13,000 of gifts to each individual from each individual are exempt from gift tax so you and your spouse can each give up to $13,000 to a child each year. The gift must be a "present interest," such as a cash gift to uniform "gifts to minors" account.

There is a lifetime exemption equivalent of up to $1 million of taxable gifts, so most people don't pay gift taxes for lifetime transfers. A gift tax return is supposed to be filed by April 15 of the next year when a taxable transfer is made.

Good luck!

Mike Gray

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