June 24, 2025 • 25 mins
Join hosts Chris Picciurro, CPA, and John Tripolsky as they break down the often-confusing world of gift taxes in this comprehensive Gift Tax 101 episode.
What You'll Learn:
• Who pays gift tax (spoiler: it's not who you think!)
• The 2025 annual gift tax exclusion of $18,000 per recipient
• How married couples can strategically gift up to $36,000 per recipient
• Why gifting appreciated assets is usually a bad idea
• Smart strategies for wedding expenses and family financial support
• Advanced planning with 529 super-funding and valuation discounts
Key Takeaways:
The donor (gift giver) pays any gift tax and files returns, not the recipient. Most gift tax returns are informational only, with no actual tax owed. Learn practical strategies, such as timing gifts across tax years and paying tuition or medical expenses directly to providers, to avoid gift tax implications entirely.
Advanced Strategies Covered:
• 529 plan super-funding (up to $90,000 per beneficiary)
• Valuation discounts for closely-held businesses
• Gift splitting for married couples
• Estate tax planning considerations
Resources:
Find a tax professional at www.2025.tax
Join/Comment > www.DefeatingTaxes.com
Episode Sponsor:
Integrated Investment Group
- (00:00) - Understanding Gift Taxes and Their Impact on Financial Success
- (02:32) - Understanding Gift Tax and Estate Planning Strategies
- (09:54) - Gift Tax Strategies and Planning Opportunities for Families
- (18:10) - Advanced Gift Tax Strategies and Estate Planning Insights
- (23:17) - Crocheting Business Success and Gifting Tax Implications
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Tripolsky (00:04):
Hey, everybody, and welcome back to the teaching
tax full podcast. Today, episode141, we are diving into gift
taxes. That's right. We'vetitled this one gift tax one
zero one. But before we get intothis one in any depth, let's
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John Tripolsky (01:14):
The teaching tax flow podcast. We know you're
excited to be here because wehave a little gift for you.
That's right. We're talkingabout gift taxes or gift taxes
one zero one, how that relatesto you, and how the IRS expects
you to report and potentiallypay on those taxes. So as we get
into it, as always, right, justthink about an example of, let's
(01:35):
say, maybe you're giftedsomething.
You had a, as Chris likes tosay, a rich uncle potentially
pass away or just, you know, youhave a bunch of cash, I will
say, left in your mailbox or,you know, it's your bank
account. But before we get intoit, as always, let's welcome
back the man of the half hour,Chris Pacira. What's happening,
buddy? How are you, man?
Chris Picciurro (01:55):
I'm well. How are you doing today?
John Tripolsky (01:57):
Good. Good. You like how I referred to you as
the man of the half hour? Thatmeans you could be twice twice
as impactful within a six
Chris Picciurro (02:03):
We're we're gonna try because this is a
question we get often in ourprivate CPA practice and in
defeating taxes, privateFacebook group about gift taxes.
There are a lot of opportunitiesright now with the Tax Cuts and
Jobs Act for some planning, and,we're recording this in 2025. So
we're gonna talk through therules that we are living in
(02:24):
right now in 2025. We're abouthalfway through the year,
because gift tax doesn't alwayshave to be addressed at the very
end of the year. So there's alot of confusion as to what is
the gift tax, how it, interplayswith your federal estate tax.
And are there special rules fordifferent types of assets, that
(02:46):
could be gifted, specifically,business interests and, what we
call super funding of 05/29plan. So, yeah, we're gonna talk
about all that today. Obviously,you're gonna want to if you're
listening to this, first of all,thank you for your attention.
Second of all, you're gonnawanna talk to your tax
(03:06):
professional and definitelyattorney when you're thinking
about doing any type of advancedgifting. Obviously, you know,
some modest Christmas gifts,slipping a $100 bill to your
child or grandchild, is not a abig deal.
But, but, yeah, you definitelywanna be, aware of things
because one thing to remember isthat when you inherit property,
(03:30):
that you get a stepped up basis,cost basis. When you gift it,
you inherit the giftor's basis.So it doesn't mean a big deal
when you're talking about cash,but let's say you have a, let's
say you have a piece of landthat grandma and grandpa bought
many moons ago for a $100,000.It's now worth a half a million
dollars. And if they just giftit to you, then your cost basis
(03:54):
is a $100,000.
If you turn around and sell it ayear later for 500, you're
paying tax on $400,000. However,if if they if you inherit it and
it's worth $500,000, your costbasis is $500,000. If you turn
around and sell it for $500,000,you're it's reportable, but
you're not paying any taxbecause there was no gain. So
(04:15):
that's where the biggest mistakeI see with people is gifting
appreciated assets is typicallya bad idea when you're talking
about, you know, family members.But, yeah, let's let's jump into
this because remember, taxagencies are your involuntary
business partner, and, the IRS,is is the collection agency for
(04:37):
the federal government.
And this might sound a littlegrim, but it but it's a lot
easier to pass legislation andto assess tax on someone that's
deceased rather than someonethat's living because deceased
people don't vote. So you've gotwhen you're talking about the
interplay between gift andestate tax, and there is one,
(04:57):
that's where, you know, that'swhere things get a little murky.
So gift tax is is a way to, orgifting is a is a strategy that
many people use to get assetsout of their estate to reduce
their exposure to estate tax.And is the right now under the
Tax Cuts and Jobs Act, theestate tax exemption is very
high. It's almost $14,000,000per person, but that could
(05:22):
easily get slashed by 75% basedon the results of a future
election.
So that's really what what itis. So in in when we talk about
gift tax, so gift tax is simplya tax imposed on the transfer of
assets. Okay?
John Tripolsky (05:39):
And I'm glad you started with defining that right
too because a lot of peoplemight think, well, what what
exactly is this? Right? Like,are you giftings? I mean, who
know? We've had some veryliteral fingers that we've run
into, right, that I wouldn't saytend to question everything, but
they do.
And, you know, it's good. Youknow, it gives us a little
drive. But I and I also likegoing back to it really quick,
Chris. You mentioned basicallythat is it called a threshold
(06:03):
really when you say you know,it's like was it 13,000,000
something? Is that the the termthat's used for that?
Chris Picciurro (06:08):
Well, that's the estate tax exemption. So,
ultimately, remember, yeah, ifyou if your assets are over the
estate tax exemption the yearyou pass away and that's a
moving target, that's the numberthat can go down, then you could
be assessed up to a 50% estatetax. So gifting is a way to get
assets out of your estate. Andand it's not just estate tax.
(06:29):
There could be people lookingfor Medicaid eligibility, v
veterans, VA benefiteligibility.
Need there there's a lot ofreasons you would gift assets
out of your, estate. So so,yeah, that's that's that's the
thought because if if it's ifyou're gonna let's say, you're
subject to a 50% estate tax, youmight as well give away things
to get under that limit. But,again, there's a right way and a
(06:52):
wrong way to do that. So whopays the gift tax? This is the
first so we we've alreadydefined what a gift tax is.
But who pays it? And this iswhat's really confusing. I'd say
eight out of 10 people or fourout of five, I guess it's the
same thing, would get thisanswer wrong. The donor pays the
gift tax if there is a gift taxand or files a gift tax return
(07:15):
if you're supposed to file areturn. Most of I mean, I would
say 98% of the time in my twentyplus years, probably 99, When a
gift tax return is prepared,there's no actual gift tax paid.
It's more informational. But theperson giving the gift, which is
called the donor, is the personthat files a gift tax return and
(07:37):
pays any gift tax. The the doneeor the person getting the gift
does not file a gift tax return.Now there are special rules if
you're getting internationalguests. We're not gonna talk
about that, and we're talking onthe federal level.
Some states have differentrules. So if you file a gift tax
return, it's the person givingthe gift, not getting the gift
(07:58):
that files the return and paysany tax, which is very rare.
Again, that's something thatthat is confusing. You know? It
seems like, well, why is someonethat's benefiting from it not
having to pay any tax or or fileanything?
John Tripolsky (08:14):
I would've got it wrong. Let's be honest. I
would've totally thought itwould've been the other way
around because it would makesense almost. Right? It it's
almost like getting a paycheck.
Right? You're, I mean Mhmm.Sure. Your employee's paying tax
on part of it. But yeah.
Yep. I just thought it wouldhave been other other ways too.
Chris Picciurro (08:30):
So every year, we have an annual gift tax
exclusion. And what this amountis is this is the month that
people can give to each otherwithout having to file any type
of gift tax return or eat awayor utilize any of their estate
tax exemption. So if you exceedthe annual gift tax exclusion,
(08:53):
you don't owe gift tax. Whathappens is you start eating away
at that lifetime exclusion basedon whatever the estate tax
exemption is for the year. Solet's look at the so that annual
gift tax exclusion is $18,000per recipient per year.
So as long as you're not givingsomeone more than $18,000 a year
(09:17):
assets, then you don't have tofile a gift tax return. So
probably 99.99999% of gifts willnever file an know, if you think
about all the holiday gifts andall that kind of stuff, file a
gift tax return. But if you givemore than $18,000 per recipient
per year, you would file a gifttax return. You have an
(09:40):
unlimited amount of recipients,and married couples can actually
each give $18,000 to theirchildren per year or or whoever
the heck they want. So a lot oftimes, I'll give you an example.
We we run into the situationswhere there might be a younger
couple. They they can afford toto purchase a home as far as
(10:04):
from a monthly incomeperspective, but they're
struggling to get the downpayment. Right? And the parents
can gift let's say the theparents need to give $50,000 to
a younger couple. Let's say theyhave a daughter and a and a
son-in-law, you know, and theywell, if mom just gives the
daughter $50, she's now $32,000over the $18,000 state or the
(10:30):
gain you'll give tax limit.
But if mom gives daughter $18,dad gives daughter $18, and then
mom and dad give the son-in-law,hopefully, he's a nice guy, the
remaining amount, no one's givenanyone more than $18,000, and
they have $50,000 tax free. Theycan use that for a down payment
on their on their first home. Itdoesn't have to be a first home,
(10:52):
but I'm just using that as anexample. Those are practical
things we look see all the timein our tax world. How did
efficiently transfer money fromone person to the other?
John Tripolsky (11:04):
And I'm sure you guys have seen it too in the
past. Right, Doug? Say there's,excuse me, say there's two
people, mom and dad. Right? Andthey say, oh, well, you know,
just here here's a check for Idon't know.
We'll we'll just call it, yep,36,000. We'll just call it what
is. There you go. Here hey.Here's a check for 36,000.
Mom writes it, sends it off. Dadwrites it, sends it off. Oh, and
(11:25):
we'll just tell them it camefrom both of us. Is that how it
works? Or
Chris Picciurro (11:29):
Technically, well, they can eat, like, what's
called gift splitting, but thenyou would have to do that on a
tax form. So they would probablywanna write two checks. And I
mean, here's another practicalexample. Daughter's getting
married. Mom and dad wannacontribute $50,000 to her
wedding.
That's very generous. Oh, we gota challenge. Right? So what
(11:53):
would I recommend? Well, maybemom and dad give her $18,000
each on December 30.
And then January 2 of the nextyear, fill it up, fill up the
remaining amount, and never anda gift tax return is not filed.
So there's a work I don't sayworkarounds, but I would call it
a planning opportunities toavoid having to file return.
(12:14):
However, remember, the vast,vast majority of gift tax
returns, there's no tax paid.It's information only. Now what
happens if you if your gift goesover the annual exclusion of
$18,000?
At that point, you have to filea gift tax return. That is for
called an form seven zero ninefrom on the federal side. Again,
(12:37):
some states conform to thefederal gift tax rules, some do
not. And at that point, if youdid that in 2025 so, John, if
they if the parents let's saytheir parents had said, hey. I
wanna give my daughter a$100,000.
Well, good good for daughter forfor winning the parent lottery
financially. They give her a$100,000. They've each given her
(13:01):
50. $32,000 each is is reportedon a gift tax return and eats
away at the $13,610,000 unifiedlifetime estate gift and estate
tax exemption. So ultimately,probably not going to be
taxable, but it is reportable.
But remember, that 31.69 or$61,000,000 per person gift tag.
(13:26):
Anyway, sorry. Unified estateexemption that could change at
any time. So during this taxcuts and jobs act era, we're
seeing a lot of very wealthyfamilies gift money out of their
estate now at that $13,610,000mark into maybe you know, there
(13:47):
there are advanced strategiesfor advanced situations into
maybe a irrevocable trust. Soit's out of their estate, and
the beneficiaries can't youknow, they can't utilize that
money.
Again, you're gonna wanna talkto a state planning attorney on
that. But, ultimately, when thatgift goes over the annual
exclusion, you have to file aseven zero nine. You report the
(14:10):
gift. You don't necessarily haveto pay tax on it. It eats away
at that your unified credit orthat lifetime estate tax
exemption.
John Tripolsky (14:19):
That's probably one of the best examples too you
mentioned about the weddings.Right?
Chris Picciurro (14:23):
Mhmm.
John Tripolsky (14:24):
It's very far and few between your fun and a
wedding under eighteen year endin these days, especially. And I
and I would I mean, I wouldprobably say, and this is just
me guessing. Right?
Chris Picciurro (14:34):
Mhmm.
John Tripolsky (14:35):
That there is probably maybe one out of a 100,
probably more than that, thatlook at it from the eyes of what
we're talking about. Right?Instead of, oh, well, it's not a
gift. Really, I'm just I'm justpaying for it. I'm covering it
for them.
I'm not giving them anything.Right? It's not like I'm giving
them cash. I'm paying for it. Sothey probably think that it
doesn't even need to bereported.
(14:55):
So they're looking at it maybeas a personal expense instead of
a gift, but it's actually agift. Right?
Chris Picciurro (15:02):
It could. Right. So that brings up a good
point. What is a gift? It'stransferring property without
full consideration.
Meaning, I'm gonna give you I'mgonna give you, you know, cash.
I'm going to give you an assetfor less value. But there are
certain things that are notconsidered gifts. So planning
comes into play. Tuition andmedical expenses, they're paid
(15:22):
directly to the provider, arenot considered a gift.
So think about this. Let's sayyou have a college aged student.
Let's say the tuition is $50,000a year. Or let's say you have a
grandchild that has some severemedical issues and at $50,000 a
year. The grandparents wannacover that, which is very
generous.
(15:43):
If they give the money to theparents or the grandchild
directly, it could trigger agift tax return. However, if
they pay the medical expensedirectly or the tuition directly
to the their medical provider orthe the financial institute,
then that's not considered agift. So, again, there's a lot
of planning involved when youget into these family situations
(16:05):
that we live in, quite a bit.And, so so that's why for
parents, it's it's just kindacleaner and grandparents or
whoever to pay the the any typeof tuition or medical expenses
directly to a provider, not ataxpayer.
John Tripolsky (16:21):
And that is interesting because, again, I
bet you a lot of people justdon't even know, you know, where
it falls. Right? So they justthey just think they're being
they're relieving a financialburden instead of giving a gift.
That sucks.
Chris Picciurro (16:34):
Right. So so the ultimately, it's like this.
When you're talking as a taxprofessional, when you're
talking to clients and people,what what people like to tell
you the stories that are kindairrelevant. Sorry if you're
listening to this and you'vetold me a story over the last
twenty years to the factpattern.
John Tripolsky (16:51):
Theirs was good, though. Just everybody else.
Chris Picciurro (16:53):
It was the right. Yeah. It's irrelevant to
your life, but it has nothing todo with I really care the of the
why. I'm trying to figure outthe what. What are you trying to
accomplish?
Are what are you are you tryingto get money to this person or
that person or that way? Justonce I figure out what they're
trying to accomplish, then wecan make a plan to make it tax
(17:13):
efficient. Now let's I wannatouch on that seven zero nine
form that I previouslymentioned. The seven zero nine
form, the gift tax return, isdue on April 15 of each year
just like a form ten forty, butcan easily be extended for six
months. Really easy to do.
Remember, married couples canelect gift splitting, which on
(17:39):
that seven zero nine. Meaning,like you mentioned, if dad
technically wrote the check fora 100,000, they can they can on
the tax charge say, yeah, dadwrote the check, but we're
electing that mom and dad splitthat that gift. Now it's cleaner
just to reach them to writeseparate checks. But, again, we
don't you know, people do thingsall the time without before
(18:02):
getting, you know, the properadvice, unfortunately. But if
you're listening to thispodcast, so hopefully, you're
not going to those people.
John Tripolsky (18:10):
And if you start going down that path, you go
back and listen to some otherepisodes.
Chris Picciurro (18:15):
You should. You'd be smarter for it.
Alright. I'm gonna talk abouttwo advanced planning strategies
because, again, we you know,there's a lot of information
about gifting. We're gonnacontinue to add on the teaching
tax law YouTube channel.
More information about gifting.There's already some good
information about estate. I I'myou know, what we're finding is
there is a thirst for estate taxplanning information. Actually,
(18:37):
John, it's interesting. Ourestate tax episodes seem to get
I I think as I have the mostlessons and downloads.
John Tripolsky (18:43):
I think so.
Chris Picciurro (18:44):
Crazy.
John Tripolsky (18:44):
Take care.
Chris Picciurro (18:45):
But that's important. So we're gonna add to
that. We're gonna get some somemore content up. But there's two
common advanced planningstrategies when it comes to gift
tax. Alright?
The first one's gonna be arounda concept of valuation
discounts. Meaning, let's say,John, you own a business and you
(19:06):
like to you remember you at onepoint, we said you were,
crocheting up a storm. And let'ssay you've you've crocheted your
way into having the best bestcompany in in, in the Midwest.
And you want and and it's wortha lots of money. Right?
You wanna gift some of thoseassets out of your estate while
(19:27):
you're alive. Well or after youpassed away. It could be part of
your estate. Well, here's thething. The concept of valuation
discount says, if you have aclosely held business without
the matriarch or without one ofthe key people in the business,
the business isn't worth as muchas it would be without them.
So because there's a lack ofmarketability, lack of control,
(19:48):
a lot of times, the fair marketvalue of the of the company
equity is reduced by 20 to 40%,typically.
John Tripolsky (19:57):
So you're saying that I hold all the crochet
skills in my little hobbybusiness. Business. So
Chris Picciurro (20:03):
what we're saying is if you own a business
and you wanna try to starttransferring the ass the the
some of the equity of thatbusiness out of your estate,
make sure you talk to the rightpeople. There could be something
called a valuation discount. Soin other words, if the business
is valued at $20,000,000 withyou, you might wanna consider an
alternative valuation. That'swhere you bring in there's I
(20:24):
mean, there are CPAs with justthe APV. I think it's a credit
business evaluator that we lookat and say, okay.
Is this eligible for evaluationdiscount, which is for which
would help the taxpayer? Muchmore common strategy is funding
the five twenty nine plans.Plans. Right? Because a lot of
times, especially grandparentsin general, but sometimes
(20:46):
parents, sometimes rich uncles,etcetera, etcetera, want to fund
a five twenty nine plan.
Five twenty nine plans, checkout our other content, subscribe
to our YouTube channel. Justjust put five twenty nine plan
in there. You're gonna see a tonof stuff, but those are those
educational savings plans. Well,some people wanna put more than
$18,000 a year in the plan.Well, the IRS said, you know
what?
(21:06):
We think education's important.We know you're, we are your
involuntary business partner,and we're gonna allow you to
superfund a five twenty nineplan. What that means is that
you could put up to $90,000 perbeneficiary in 2025 into the
five twenty nine plan in in 2025and then make an election to
say, you know what? We're gonnaspread that gift over five years
(21:29):
so we know we don't touch ourour state tax exemption. All
we're doing is we're filling upthat $18,000 per year annual
gift tax exclusion.
So there's that if you hearabout that five year averaging
rule, that allows marriedcouples to super fund, basically
front load up to $180,000 into acollege savings accounts for
(21:50):
their kids and never, not evenyou know, they'll they'll
they'll prepare a gift extra tomake the election, but they're
never gonna eat away at thatlifetime exemption. So those are
really that one's really common,where we'll see, you know, we'll
see that happen in in the realworld. So going to wrap it up
with just some some otherconsiderations. You know, the
(22:12):
more advanced or the more thelarger your estate, the more
complicated your estate. If youhave real estate, businesses,
trusts, you obviously need to toutilize different strategies for
for those situations.
So that, you know, as we and andI challenged you earlier. I
don't know if I've heard it yet,though. The we're we're supposed
(22:33):
to have a sound effect whenthere's an acronym. So we're
gonna have more acronyms. We gotgrits.
We got grits. We got gruts.These are all grant or retain
trusts and and all these kindacool things that could play a
role if you have a more complexestate. Remember that Tax Cuts
and Jobs Act is set to expirehere soon, and the exemption for
(22:55):
your the state could get choppedin half or or or reduced by by
up to 75%. We're gonna see whathappens with the tax loss.
So that's that's that's gift taxone zero one.
John Tripolsky (23:09):
Not too bad. I'm still caught up on the fact that
I managed to needle my way intoa $20,000,000 crocheting biz.
I'm sure there's a differentcharms in that. Yeah.
Chris Picciurro (23:18):
I'm sure you have a separate podcast for
that.
John Tripolsky (23:20):
That's my
Chris Picciurro (23:21):
Called What do it?
John Tripolsky (23:23):
Alter ego.
Chris Picciurro (23:24):
It's Needling away or something. Something
fun.
John Tripolsky (23:27):
You know, I know somebody's listening to this.
It's like, it is not called aneedle a needle in crochet. You
are incorrect. You are yes. Idon't know what it's called.
Chris Picciurro (23:35):
Hey. If you if if you know the proper term,
please go on our YouTube podcastepisode. And you know what? Slap
a comment in there. You know?
Slap back at us a little bit. II like I like it.
John Tripolsky (23:46):
Tell me how wrong we are with this. This
would be perfect. But, yeah, no,Chris, this was a great one.
Tell me about GIMP tax,obviously. And and I think you
again, you brought up an exampleof, you know, wedding weddings.
I would that's probably one ofthe biggest things. Right? Like,
it's and, again, I would havethought it would have been the
other way around. Like, who paysthe tax? Like, hey.
I'm giving you the gift. You payit. You know, kinda do that
deal, but then I get it on theother side of the fence too. So
(24:08):
as always, though, we'rewrapping this one up.
Specifically, any questions, asChris had mentioned too, comment
on YouTube, Facebook, whereveryou see this at, drop us a line,
and actually tell us someexamples maybe of things you
could think of that are outthere that people may not
realize they are actuallygifting something without
reporting it appropriately.
(24:30):
So it'd just be interesting tosee what people you know, things
that you've done in the past or,you know, give us an alias and
tell us that you did it. Wedon't care. It's more the more
the context of it. But we'll seeeverybody back here again on the
teaching text full podcast. Sameday of the week, different time
of the day, maybe completelydifferent topic.
Switch it up every week. Sowe'll see everybody later. Have
(24:51):
a good one. Again, like,comment, subscribe to the
YouTube channel specifically orwherever you consume your
podcast, and heck, share thiswith someone. Give them a gift.
Here's a tip. It is worth over$18,000 indirectly. But you're
not gonna get taxed at sharing apodcast, so share with them.
They'll thank you later. Have agreat week.
Disclaimer (25:14):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(25:35):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
Hey, everybody, and welcome back to the teaching
tax full podcast. Today, episode141, we are diving into gift
taxes. That's right. We'vetitled this one gift tax one
zero one. But before we get intothis one in any depth, let's
take a brief moment and thankour episode sponsor.
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John Tripolsky (01:14):
The teaching tax flow podcast. We know you're
excited to be here because wehave a little gift for you.
That's right. We're talkingabout gift taxes or gift taxes
one zero one, how that relatesto you, and how the IRS expects
you to report and potentiallypay on those taxes. So as we get
into it, as always, right, justthink about an example of, let's
(01:35):
say, maybe you're giftedsomething.
You had a, as Chris likes tosay, a rich uncle potentially
pass away or just, you know, youhave a bunch of cash, I will
say, left in your mailbox or,you know, it's your bank
account. But before we get intoit, as always, let's welcome
back the man of the half hour,Chris Pacira. What's happening,
buddy? How are you, man?
Chris Picciurro (01:55):
I'm well. How are you doing today?
John Tripolsky (01:57):
Good. Good. You like how I referred to you as
the man of the half hour? Thatmeans you could be twice twice
as impactful within a six
Chris Picciurro (02:03):
We're we're gonna try because this is a
question we get often in ourprivate CPA practice and in
defeating taxes, privateFacebook group about gift taxes.
There are a lot of opportunitiesright now with the Tax Cuts and
Jobs Act for some planning, and,we're recording this in 2025. So
we're gonna talk through therules that we are living in
(02:24):
right now in 2025. We're abouthalfway through the year,
because gift tax doesn't alwayshave to be addressed at the very
end of the year. So there's alot of confusion as to what is
the gift tax, how it, interplayswith your federal estate tax.
And are there special rules fordifferent types of assets, that
(02:46):
could be gifted, specifically,business interests and, what we
call super funding of 05/29plan. So, yeah, we're gonna talk
about all that today. Obviously,you're gonna want to if you're
listening to this, first of all,thank you for your attention.
Second of all, you're gonnawanna talk to your tax
(03:06):
professional and definitelyattorney when you're thinking
about doing any type of advancedgifting. Obviously, you know,
some modest Christmas gifts,slipping a $100 bill to your
child or grandchild, is not a abig deal.
But, but, yeah, you definitelywanna be, aware of things
because one thing to remember isthat when you inherit property,
(03:30):
that you get a stepped up basis,cost basis. When you gift it,
you inherit the giftor's basis.So it doesn't mean a big deal
when you're talking about cash,but let's say you have a, let's
say you have a piece of landthat grandma and grandpa bought
many moons ago for a $100,000.It's now worth a half a million
dollars. And if they just giftit to you, then your cost basis
(03:54):
is a $100,000.
If you turn around and sell it ayear later for 500, you're
paying tax on $400,000. However,if if they if you inherit it and
it's worth $500,000, your costbasis is $500,000. If you turn
around and sell it for $500,000,you're it's reportable, but
you're not paying any taxbecause there was no gain. So
(04:15):
that's where the biggest mistakeI see with people is gifting
appreciated assets is typicallya bad idea when you're talking
about, you know, family members.But, yeah, let's let's jump into
this because remember, taxagencies are your involuntary
business partner, and, the IRS,is is the collection agency for
(04:37):
the federal government.
And this might sound a littlegrim, but it but it's a lot
easier to pass legislation andto assess tax on someone that's
deceased rather than someonethat's living because deceased
people don't vote. So you've gotwhen you're talking about the
interplay between gift andestate tax, and there is one,
(04:57):
that's where, you know, that'swhere things get a little murky.
So gift tax is is a way to, orgifting is a is a strategy that
many people use to get assetsout of their estate to reduce
their exposure to estate tax.And is the right now under the
Tax Cuts and Jobs Act, theestate tax exemption is very
high. It's almost $14,000,000per person, but that could
(05:22):
easily get slashed by 75% basedon the results of a future
election.
So that's really what what itis. So in in when we talk about
gift tax, so gift tax is simplya tax imposed on the transfer of
assets. Okay?
John Tripolsky (05:39):
And I'm glad you started with defining that right
too because a lot of peoplemight think, well, what what
exactly is this? Right? Like,are you giftings? I mean, who
know? We've had some veryliteral fingers that we've run
into, right, that I wouldn't saytend to question everything, but
they do.
And, you know, it's good. Youknow, it gives us a little
drive. But I and I also likegoing back to it really quick,
Chris. You mentioned basicallythat is it called a threshold
(06:03):
really when you say you know,it's like was it 13,000,000
something? Is that the the termthat's used for that?
Chris Picciurro (06:08):
Well, that's the estate tax exemption. So,
ultimately, remember, yeah, ifyou if your assets are over the
estate tax exemption the yearyou pass away and that's a
moving target, that's the numberthat can go down, then you could
be assessed up to a 50% estatetax. So gifting is a way to get
assets out of your estate. Andand it's not just estate tax.
(06:29):
There could be people lookingfor Medicaid eligibility, v
veterans, VA benefiteligibility.
Need there there's a lot ofreasons you would gift assets
out of your, estate. So so,yeah, that's that's that's the
thought because if if it's ifyou're gonna let's say, you're
subject to a 50% estate tax, youmight as well give away things
to get under that limit. But,again, there's a right way and a
(06:52):
wrong way to do that. So whopays the gift tax? This is the
first so we we've alreadydefined what a gift tax is.
But who pays it? And this iswhat's really confusing. I'd say
eight out of 10 people or fourout of five, I guess it's the
same thing, would get thisanswer wrong. The donor pays the
gift tax if there is a gift taxand or files a gift tax return
(07:15):
if you're supposed to file areturn. Most of I mean, I would
say 98% of the time in my twentyplus years, probably 99, When a
gift tax return is prepared,there's no actual gift tax paid.
It's more informational. But theperson giving the gift, which is
called the donor, is the personthat files a gift tax return and
(07:37):
pays any gift tax. The the doneeor the person getting the gift
does not file a gift tax return.Now there are special rules if
you're getting internationalguests. We're not gonna talk
about that, and we're talking onthe federal level.
Some states have differentrules. So if you file a gift tax
return, it's the person givingthe gift, not getting the gift
(07:58):
that files the return and paysany tax, which is very rare.
Again, that's something thatthat is confusing. You know? It
seems like, well, why is someonethat's benefiting from it not
having to pay any tax or or fileanything?
John Tripolsky (08:14):
I would've got it wrong. Let's be honest. I
would've totally thought itwould've been the other way
around because it would makesense almost. Right? It it's
almost like getting a paycheck.
Right? You're, I mean Mhmm.Sure. Your employee's paying tax
on part of it. But yeah.
Yep. I just thought it wouldhave been other other ways too.
Chris Picciurro (08:30):
So every year, we have an annual gift tax
exclusion. And what this amountis is this is the month that
people can give to each otherwithout having to file any type
of gift tax return or eat awayor utilize any of their estate
tax exemption. So if you exceedthe annual gift tax exclusion,
(08:53):
you don't owe gift tax. Whathappens is you start eating away
at that lifetime exclusion basedon whatever the estate tax
exemption is for the year. Solet's look at the so that annual
gift tax exclusion is $18,000per recipient per year.
So as long as you're not givingsomeone more than $18,000 a year
(09:17):
assets, then you don't have tofile a gift tax return. So
probably 99.99999% of gifts willnever file an know, if you think
about all the holiday gifts andall that kind of stuff, file a
gift tax return. But if you givemore than $18,000 per recipient
per year, you would file a gifttax return. You have an
(09:40):
unlimited amount of recipients,and married couples can actually
each give $18,000 to theirchildren per year or or whoever
the heck they want. So a lot oftimes, I'll give you an example.
We we run into the situationswhere there might be a younger
couple. They they can afford toto purchase a home as far as
(10:04):
from a monthly incomeperspective, but they're
struggling to get the downpayment. Right? And the parents
can gift let's say the theparents need to give $50,000 to
a younger couple. Let's say theyhave a daughter and a and a
son-in-law, you know, and theywell, if mom just gives the
daughter $50, she's now $32,000over the $18,000 state or the
(10:30):
gain you'll give tax limit.
But if mom gives daughter $18,dad gives daughter $18, and then
mom and dad give the son-in-law,hopefully, he's a nice guy, the
remaining amount, no one's givenanyone more than $18,000, and
they have $50,000 tax free. Theycan use that for a down payment
on their on their first home. Itdoesn't have to be a first home,
(10:52):
but I'm just using that as anexample. Those are practical
things we look see all the timein our tax world. How did
efficiently transfer money fromone person to the other?
John Tripolsky (11:04):
And I'm sure you guys have seen it too in the
past. Right, Doug? Say there's,excuse me, say there's two
people, mom and dad. Right? Andthey say, oh, well, you know,
just here here's a check for Idon't know.
We'll we'll just call it, yep,36,000. We'll just call it what
is. There you go. Here hey.Here's a check for 36,000.
Mom writes it, sends it off. Dadwrites it, sends it off. Oh, and
(11:25):
we'll just tell them it camefrom both of us. Is that how it
works? Or
Chris Picciurro (11:29):
Technically, well, they can eat, like, what's
called gift splitting, but thenyou would have to do that on a
tax form. So they would probablywanna write two checks. And I
mean, here's another practicalexample. Daughter's getting
married. Mom and dad wannacontribute $50,000 to her
wedding.
That's very generous. Oh, we gota challenge. Right? So what
(11:53):
would I recommend? Well, maybemom and dad give her $18,000
each on December 30.
And then January 2 of the nextyear, fill it up, fill up the
remaining amount, and never anda gift tax return is not filed.
So there's a work I don't sayworkarounds, but I would call it
a planning opportunities toavoid having to file return.
(12:14):
However, remember, the vast,vast majority of gift tax
returns, there's no tax paid.It's information only. Now what
happens if you if your gift goesover the annual exclusion of
$18,000?
At that point, you have to filea gift tax return. That is for
called an form seven zero ninefrom on the federal side. Again,
(12:37):
some states conform to thefederal gift tax rules, some do
not. And at that point, if youdid that in 2025 so, John, if
they if the parents let's saytheir parents had said, hey. I
wanna give my daughter a$100,000.
Well, good good for daughter forfor winning the parent lottery
financially. They give her a$100,000. They've each given her
(13:01):
50. $32,000 each is is reportedon a gift tax return and eats
away at the $13,610,000 unifiedlifetime estate gift and estate
tax exemption. So ultimately,probably not going to be
taxable, but it is reportable.
But remember, that 31.69 or$61,000,000 per person gift tag.
(13:26):
Anyway, sorry. Unified estateexemption that could change at
any time. So during this taxcuts and jobs act era, we're
seeing a lot of very wealthyfamilies gift money out of their
estate now at that $13,610,000mark into maybe you know, there
(13:47):
there are advanced strategiesfor advanced situations into
maybe a irrevocable trust. Soit's out of their estate, and
the beneficiaries can't youknow, they can't utilize that
money.
Again, you're gonna wanna talkto a state planning attorney on
that. But, ultimately, when thatgift goes over the annual
exclusion, you have to file aseven zero nine. You report the
(14:10):
gift. You don't necessarily haveto pay tax on it. It eats away
at that your unified credit orthat lifetime estate tax
exemption.
John Tripolsky (14:19):
That's probably one of the best examples too you
mentioned about the weddings.Right?
Chris Picciurro (14:23):
Mhmm.
John Tripolsky (14:24):
It's very far and few between your fun and a
wedding under eighteen year endin these days, especially. And I
and I would I mean, I wouldprobably say, and this is just
me guessing. Right?
Chris Picciurro (14:34):
Mhmm.
John Tripolsky (14:35):
That there is probably maybe one out of a 100,
probably more than that, thatlook at it from the eyes of what
we're talking about. Right?Instead of, oh, well, it's not a
gift. Really, I'm just I'm justpaying for it. I'm covering it
for them.
I'm not giving them anything.Right? It's not like I'm giving
them cash. I'm paying for it. Sothey probably think that it
doesn't even need to bereported.
(14:55):
So they're looking at it maybeas a personal expense instead of
a gift, but it's actually agift. Right?
Chris Picciurro (15:02):
It could. Right. So that brings up a good
point. What is a gift? It'stransferring property without
full consideration.
Meaning, I'm gonna give you I'mgonna give you, you know, cash.
I'm going to give you an assetfor less value. But there are
certain things that are notconsidered gifts. So planning
comes into play. Tuition andmedical expenses, they're paid
(15:22):
directly to the provider, arenot considered a gift.
So think about this. Let's sayyou have a college aged student.
Let's say the tuition is $50,000a year. Or let's say you have a
grandchild that has some severemedical issues and at $50,000 a
year. The grandparents wannacover that, which is very
generous.
(15:43):
If they give the money to theparents or the grandchild
directly, it could trigger agift tax return. However, if
they pay the medical expensedirectly or the tuition directly
to the their medical provider orthe the financial institute,
then that's not considered agift. So, again, there's a lot
of planning involved when youget into these family situations
(16:05):
that we live in, quite a bit.And, so so that's why for
parents, it's it's just kindacleaner and grandparents or
whoever to pay the the any typeof tuition or medical expenses
directly to a provider, not ataxpayer.
John Tripolsky (16:21):
And that is interesting because, again, I
bet you a lot of people justdon't even know, you know, where
it falls. Right? So they justthey just think they're being
they're relieving a financialburden instead of giving a gift.
That sucks.
Chris Picciurro (16:34):
Right. So so the ultimately, it's like this.
When you're talking as a taxprofessional, when you're
talking to clients and people,what what people like to tell
you the stories that are kindairrelevant. Sorry if you're
listening to this and you'vetold me a story over the last
twenty years to the factpattern.
John Tripolsky (16:51):
Theirs was good, though. Just everybody else.
Chris Picciurro (16:53):
It was the right. Yeah. It's irrelevant to
your life, but it has nothing todo with I really care the of the
why. I'm trying to figure outthe what. What are you trying to
accomplish?
Are what are you are you tryingto get money to this person or
that person or that way? Justonce I figure out what they're
trying to accomplish, then wecan make a plan to make it tax
(17:13):
efficient. Now let's I wannatouch on that seven zero nine
form that I previouslymentioned. The seven zero nine
form, the gift tax return, isdue on April 15 of each year
just like a form ten forty, butcan easily be extended for six
months. Really easy to do.
Remember, married couples canelect gift splitting, which on
(17:39):
that seven zero nine. Meaning,like you mentioned, if dad
technically wrote the check fora 100,000, they can they can on
the tax charge say, yeah, dadwrote the check, but we're
electing that mom and dad splitthat that gift. Now it's cleaner
just to reach them to writeseparate checks. But, again, we
don't you know, people do thingsall the time without before
(18:02):
getting, you know, the properadvice, unfortunately. But if
you're listening to thispodcast, so hopefully, you're
not going to those people.
John Tripolsky (18:10):
And if you start going down that path, you go
back and listen to some otherepisodes.
Chris Picciurro (18:15):
You should. You'd be smarter for it.
Alright. I'm gonna talk abouttwo advanced planning strategies
because, again, we you know,there's a lot of information
about gifting. We're gonnacontinue to add on the teaching
tax law YouTube channel.
More information about gifting.There's already some good
information about estate. I I'myou know, what we're finding is
there is a thirst for estate taxplanning information. Actually,
(18:37):
John, it's interesting. Ourestate tax episodes seem to get
I I think as I have the mostlessons and downloads.
John Tripolsky (18:43):
I think so.
Chris Picciurro (18:44):
Crazy.
John Tripolsky (18:44):
Take care.
Chris Picciurro (18:45):
But that's important. So we're gonna add to
that. We're gonna get some somemore content up. But there's two
common advanced planningstrategies when it comes to gift
tax. Alright?
The first one's gonna be arounda concept of valuation
discounts. Meaning, let's say,John, you own a business and you
(19:06):
like to you remember you at onepoint, we said you were,
crocheting up a storm. And let'ssay you've you've crocheted your
way into having the best bestcompany in in, in the Midwest.
And you want and and it's wortha lots of money. Right?
You wanna gift some of thoseassets out of your estate while
(19:27):
you're alive. Well or after youpassed away. It could be part of
your estate. Well, here's thething. The concept of valuation
discount says, if you have aclosely held business without
the matriarch or without one ofthe key people in the business,
the business isn't worth as muchas it would be without them.
So because there's a lack ofmarketability, lack of control,
(19:48):
a lot of times, the fair marketvalue of the of the company
equity is reduced by 20 to 40%,typically.
John Tripolsky (19:57):
So you're saying that I hold all the crochet
skills in my little hobbybusiness. Business. So
Chris Picciurro (20:03):
what we're saying is if you own a business
and you wanna try to starttransferring the ass the the
some of the equity of thatbusiness out of your estate,
make sure you talk to the rightpeople. There could be something
called a valuation discount. Soin other words, if the business
is valued at $20,000,000 withyou, you might wanna consider an
alternative valuation. That'swhere you bring in there's I
(20:24):
mean, there are CPAs with justthe APV. I think it's a credit
business evaluator that we lookat and say, okay.
Is this eligible for evaluationdiscount, which is for which
would help the taxpayer? Muchmore common strategy is funding
the five twenty nine plans.Plans. Right? Because a lot of
times, especially grandparentsin general, but sometimes
(20:46):
parents, sometimes rich uncles,etcetera, etcetera, want to fund
a five twenty nine plan.
Five twenty nine plans, checkout our other content, subscribe
to our YouTube channel. Justjust put five twenty nine plan
in there. You're gonna see a tonof stuff, but those are those
educational savings plans. Well,some people wanna put more than
$18,000 a year in the plan.Well, the IRS said, you know
what?
(21:06):
We think education's important.We know you're, we are your
involuntary business partner,and we're gonna allow you to
superfund a five twenty nineplan. What that means is that
you could put up to $90,000 perbeneficiary in 2025 into the
five twenty nine plan in in 2025and then make an election to
say, you know what? We're gonnaspread that gift over five years
(21:29):
so we know we don't touch ourour state tax exemption. All
we're doing is we're filling upthat $18,000 per year annual
gift tax exclusion.
So there's that if you hearabout that five year averaging
rule, that allows marriedcouples to super fund, basically
front load up to $180,000 into acollege savings accounts for
(21:50):
their kids and never, not evenyou know, they'll they'll
they'll prepare a gift extra tomake the election, but they're
never gonna eat away at thatlifetime exemption. So those are
really that one's really common,where we'll see, you know, we'll
see that happen in in the realworld. So going to wrap it up
with just some some otherconsiderations. You know, the
(22:12):
more advanced or the more thelarger your estate, the more
complicated your estate. If youhave real estate, businesses,
trusts, you obviously need to toutilize different strategies for
for those situations.
So that, you know, as we and andI challenged you earlier. I
don't know if I've heard it yet,though. The we're we're supposed
(22:33):
to have a sound effect whenthere's an acronym. So we're
gonna have more acronyms. We gotgrits.
We got grits. We got gruts.These are all grant or retain
trusts and and all these kindacool things that could play a
role if you have a more complexestate. Remember that Tax Cuts
and Jobs Act is set to expirehere soon, and the exemption for
(22:55):
your the state could get choppedin half or or or reduced by by
up to 75%. We're gonna see whathappens with the tax loss.
So that's that's that's gift taxone zero one.
John Tripolsky (23:09):
Not too bad. I'm still caught up on the fact that
I managed to needle my way intoa $20,000,000 crocheting biz.
I'm sure there's a differentcharms in that. Yeah.
Chris Picciurro (23:18):
I'm sure you have a separate podcast for
that.
John Tripolsky (23:20):
That's my
Chris Picciurro (23:21):
Called What do it?
John Tripolsky (23:23):
Alter ego.
Chris Picciurro (23:24):
It's Needling away or something. Something
fun.
John Tripolsky (23:27):
You know, I know somebody's listening to this.
It's like, it is not called aneedle a needle in crochet. You
are incorrect. You are yes. Idon't know what it's called.
Chris Picciurro (23:35):
Hey. If you if if you know the proper term,
please go on our YouTube podcastepisode. And you know what? Slap
a comment in there. You know?
Slap back at us a little bit. II like I like it.
John Tripolsky (23:46):
Tell me how wrong we are with this. This
would be perfect. But, yeah, no,Chris, this was a great one.
Tell me about GIMP tax,obviously. And and I think you
again, you brought up an exampleof, you know, wedding weddings.
I would that's probably one ofthe biggest things. Right? Like,
it's and, again, I would havethought it would have been the
other way around. Like, who paysthe tax? Like, hey.
I'm giving you the gift. You payit. You know, kinda do that
deal, but then I get it on theother side of the fence too. So
(24:08):
as always, though, we'rewrapping this one up.
Specifically, any questions, asChris had mentioned too, comment
on YouTube, Facebook, whereveryou see this at, drop us a line,
and actually tell us someexamples maybe of things you
could think of that are outthere that people may not
realize they are actuallygifting something without
reporting it appropriately.
(24:30):
So it'd just be interesting tosee what people you know, things
that you've done in the past or,you know, give us an alias and
tell us that you did it. Wedon't care. It's more the more
the context of it. But we'll seeeverybody back here again on the
teaching text full podcast. Sameday of the week, different time
of the day, maybe completelydifferent topic.
Switch it up every week. Sowe'll see everybody later. Have
(24:51):
a good one. Again, like,comment, subscribe to the
YouTube channel specifically orwherever you consume your
podcast, and heck, share thiswith someone. Give them a gift.
Here's a tip. It is worth over$18,000 indirectly. But you're
not gonna get taxed at sharing apodcast, so share with them.
They'll thank you later. Have agreat week.
Disclaimer (25:14):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(25:35):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
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