Gift Tax Implications For Weddings
Will you owe gift tax on your wedding gift to your child?
Little Janie or little Mike is all grown up and getting married. Aside from picking out flowers and screening the band, if you plan on paying for this expensive affair, make sure to plan ahead or else you may find yourself owning additional tax.
What is the gift tax?
A U.S. person is allowed to give $14k each year to an unlimited number of people without facing any tax ramifications. This amount is called the “gift tax exclusion”, and is periodically increased for inflation.
While there are exceptions (ie - gift to your spouse) - generally amounts in excess of the exclusion amount may be subject to the gift tax.
Not a tax per-se, but a bite out of your large lifetime pie
It is important to note that you most likely will not actually owe any tax, but rather you will report the gift on your gift tax return (form 709), where it will be subtracted from the lifetime estate tax limit (which is currently set at $ 5,490,000). This is the total amount you are allowed to give away prior to, or upon, your death before you or your estate owe taxes. Also note that your little ones who receive this monetary gift will not usually owe taxes on the gift.
Applying the Gift Tax to a Wedding
How can you structure this gift wisely? Assuming you are married, you and your spouse could each give your child & your future son/daughter in law the annual limit of $14k; totaling $56k in tax free and reporting free gifts. Whether you send them a check or pay the vendors directly - this is a gift.
Now - the next question is how many people actually report these gift taxes on their tax returns. There are no IRS opinions or court rulings on this subject.