The federal annual gift tax exclusion is $14,000 per recipient in 2015 and will remain so in 2016. This means that you can give up to $14,000 to each of your children, grandchildren, and any other individual you choose without it counting against your lifetime annual exclusion of $5.43 million (increasing to $5.45 million in 2016) and without any reporting requirements.
Gifting is a terrific way to pass on wealth during your lifetime tax-free. Gifts can be made in cash or in kind (securities, property interests, etc.). The simplest method is to simply write a check for any amount up to $14,000 to a particular recipient. However, if you choose to gift property interests (for example, 100 shares of Coca Cola stock), you should keep in mind that gifted property will inherit your income tax basis. Therefore, if the recipient sells the property later, he or she will recognize a gain or loss based on your basis in the property. Additionally, if you are gifting assets such as an interest in a family business, real estate or collectibles, you should obtain an appraisal of the interest beforehand.
You can direct a gift to a 529 college savings plan in lieu of making a gift directly to the student or potential student.
Gifts such as paying a grandchild’s tuition or a brother’s qualified medical expenses are not restricted to the $14,000 limit. You should consult a qualified estate planner to discuss gifting rules and techniques further.