Gifting is Not a Tax Deduction

I received an email from a customer this week asking about gifting money to her daughter. She wanted to know the consequences of gifting money to her daughter so that her daughter could buy a house. This is very common and not the first time I’ve heard this question. I will preface this whole conversation by saying I do not work on estates and I am not an estate and accountant.

So beware if you have estate tax issues, you should be seeking the advice of an estate tax attorney or CPA, and I’d suggest you not even listen to the rest of the video, but if you have a pretty simple case and not a large estate matter, this can be a way to transfer money from a generation to another or just to anyone.

Tax law on gifting

The tax law says that you have an annual gift law exclusion each year, that amount for 2023 is $17,000 per person. That means that I can give someone $17,000 and they can receive that money with no tax consequences.

In order to be considered a gift they had to have done nothing for me or given me nothing in return for that money, if they worked for me that’s not a gift, that’s compensation.

But assuming that they didn’t do anything for you and you want to give money to someone, $17,000 is our magical number for 2023, this number changes each year. So please reference the current year number in future years.

How many times can you give $17,000?

Well, that’s a per person limit on an annual basis. So what happens if I give a million people $17,000 and give away $17 million? Well, you can’t do that. You can do it, but you’ll have taxes to pay in the form of a gift tax.

Throughout a person’s lifetime they can gift and have money in an estate at the time that they die of, whatever amount that is. The exclusion currently is 12.92 million that they can have in their estate and not pay any taxes.

Now, that’s a pretty hefty amount, and that number again changes each and every year, so please reference the current numbers for current information.

But in most cases, if you’re nowhere near that amount, you shouldn’t have any trouble gifting $17,000 per year.

The daughter scenario

Now in this scenario, if the person that sent me this email is married and they’re giving money to their daughter who is unmarried, the wife can give $17,000 and the husband can give $17,000. So the daughter could receive $34,000 tax free in one year.

Now let’s add another complexity to that, let’s say that the daughter is married and the parents are married. Now we have four exemptions per year.

So technically each person in that scenario could give $17,000 times four, $68,000 in one year with no tax consequences. What if it’s a hundred thousand? Then you have to file a gift tax return. Do I pay tax? How much do I pay? Well, as long as your estate is still under that limitation, when you die, there’ll be no tax due.

If you’re expected to go over that, then you would have a tax in the estate later on. That just helps the IRS keep track of what’s in your state tax exclusion.

Do I get a deduction?

So this can get really complex really quickly, but I’m going to bring you back to the quickie answer to that original question. How much can I gift $17,000? Do I get a deduction as the person who gives the money? No, there is no tax deduction, no tax consequence for the giver unless of course you have a large estate situation.

So keep that in mind use that to your favor, now in that scenario, I will also put a little asterisk that if that daughter was buying a house and getting a mortgage, make sure you clear all of this through what they’re going to need with the mortgage, because that can get pretty hairy too. So that’s how gifting works in a nutshell.

For additional read: Why Your Studio Needs to Have a Gift Card System

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Donna Bordeaux, CPA with PYOPAccounting.com

Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.