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Gift Tax Exclusions Allow for Large Donations to Friends, Family

Donors can give over $5 million lifetime without paying gift tax, but there are annual limits.

| BY Kent McDill

The gift tax rules changed for 2013, but it only applies to you if you plan on gifting a LOT of money.

The Internal Revenue tax law says that a citizen can gift another citizen $14,000 a year in cash and assets free of tax concerns, and can provide that same amount to as many individuals as you want. Spouses can gift up to $28,000 per person per year, and add their exclusion amount.

The only other limit that exists (and it is a limit that changed in 2013) is that an individual can only gift $5.25 million over a lifetime tax free.  The amount rises to $5.34 million in 2014.

If a citizen exceeds their lifetime gift-tax exemption, he could end up with a gift tax of up to 40 percent. Also, your lifetime gifts will reduce how much tax is paid upon your estate when you pass away.

Gifts do not require a familial relationship.

There are ways to give even greater amounts tax-free, but they have specific rules to avoid taxes.

Donors can give any amount paid as tuition to education, beyond the $14,000 per year exclusion for individuals. The gifts have to be paid directly to the institution, and can only go to tuition, not to pay for books supplies or living expenses. They also cannot reimburse an individual for tuition already paid; they must go directly to the institution.

There is also an unlimited gift tax exclusion for any money contributed to pay for medical care for an individual. Again, the payment has to be made directly to the provider and cannot reimburse for payments already made. They also cannot reimburse for payments made by the donee’s insurance policy.

If a donor makes a medical payment to the provider, and then insurance makes a payment for the same service, the donation is no longer excluded from the gift tax, so there must be caution to make sure insurance payments have been exhausted.

About the Author

Kent McDill

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.