Rebecca Rosenberger Smolen, left, and Amy Neifeld Shkedy, right, of Bala Law Group.
As estate planners, we often come across questions about the tax consequences of making lifetime gifts. This article is intended to shed some light on how gifting fits into the overall tax system and to clear up common misconceptions about the tax implications of gifting.
Although often misunderstood, it is important to understand that when a person makes a gift (other than a charitable gift), it does not affect the federal income tax of the donor or the donee of the gift. That means that the donor making the gift cannot deduct the value of the gift (other than charitable contributions) on his federal income tax return, and, likewise, the donee receiving the gift is not subject to federal income tax on the funds received. The federal gift tax regime, not the federal income tax regime, is what’s at play.
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