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When speaking to groups on issues related to illness, death and taxes for the middle class, I spend more time on matters related to gift taxes than I do the federal estate tax. The reason is simple -- the gift tax applies to more middle class homes than the estate tax does.
The gift tax is a tax owed by the person making the gift if the amount exceeds the annual exclusion for the year (in 2012 it is $13,000 per person per year). However, there are transfers that may give the appearance of a gift, but are not taxable according to the IRS. Three of them are:
- Transfers to political organizations (as defined in Section 527(e)1(1) of IRS code);
- Transfers for education, excluding costs for books, supplies, dorm fees or board, as well as contributions to 529 plans; and
- Transfers for medical expenses (care must meet the same requirements as the income tax deduction).
Now remember, a blog is not a lawyer so this is not legal advice. It is not tax advice. Rather it is a forum for discussion. As the calendar year winds down, rhetoric out of Washington, DC flares with talk of the federal estate tax. Again, this is unlikely to impact most middle income homes. The gift tax does. It is important to know what it is, when it applies, and what the exceptions are. Blog posts are stagnant once posted, so it is vital to consult with an attorney or tax professional to ascertain the current laws. Ask questions, gather information, be informed. You'll be thankful in the end.