2018 Inflation Adjustments (Annual increase for gifts)

Code Sec. 2503(b) annual gift tax exclusion increases to $15,000 for 2018 (up from $14,000 in 2013-2017). Gifts made to any person by the donor during the calendar year, the first $15,000 of such gifts to such person shall not, be included in taxable income in the total amount of gifts made during such year. In addition, the first $152,000 of gifts to a noncitizen spouse in 2018 is not included in the donor’s annual amount of taxable gifts under Code Secs. 2503 and 2523(i)(2) (up from $149,000 in 2017).

Totally separate from the lifetime gift exemption amount is the annual gift tax exclusion amount. It’s $15,000 for 2018; finally changed from the stagnant level it has been at since 2013. You can give away $15,000 to as many individuals as you’d like. A husband and wife can each make $15,000 gifts. So for example, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. The annual exclusion gifts don’t count towards the lifetime gift exemption.

When you’re making gifts to children and grandchildren, keep in mind that there’s a federal kiddie tax that covers students through the age of 23 and puts investment income, above small amounts, into the parents’ tax bracket. For 2017, it was established that the kid pays no tax on the first $1,050 of unearned income and then 10% rate on the next $1,050, the same as in 2016. It pays to make gifts early in the year.

If you want to make gifts and not have to bother to keep track for gift tax purposes, you can make gifts for medical, dental, and tuition expenses for as many relatives (or friends) as you’d like so long as you pay the provider directly. These gifts don’t count towards any of the limits. Additionally stuffing a 529 college savings accounts or funding a gift trust are a couple other methods to prepare your heirs for college.

If you have additional questions feel free to contact the professionals at the Center at 618-997-3436 for assistance in understanding the estate and gift tax limits for the 2018 adjustments.