The Skinny on Gift Tax Valuation

A lot of people make a big stink about gift tax valuation, and for good reason. It can certainly seem pretty complicated. The good news is that it doesn’t have to be.

This article is just a quick guide for individuals & businesses that need help with valuing gift taxes. While we’re going to make every attempt to keep this piece as fun as possible, gift tax valuation is not exactly the most fun topic in the world.

Regardless, we’ll give it a shot.

Quick Gift Tax Overview

The IRS defines gift tax as ‘a tax on the transfer of property by one individual to another while receiving nothing (or less than full value) in return.’

Basically when you give something away without the expectation of getting something back, that’s a gift. Just like we do on holidays J

If you give somebody a loan that has really good terms, or if you sell something for way less than it’s worth (i.e. sell your new Lexus for $500) that could be qualified as a gift. In the event that your gifting is NOT a qualified exemption, you’ll have to complete IRS Form 709.

You can gift up to $13,000 per year to anyone and not have to pay any taxes on it. Pretty cool, right? But there’s something even cooler… In 2011 and 2012 you can gift out up to $5,000,000 ($10,000,000 if you’re married) and not have to pay a DIME in taxes!

Crazy times. But if you’re looking to save on taxes, NOW is a good time to do it.

Important Limitations on Gift Tax Valution

You need to “adequately” define & disclose the value of your gifts. Find more info on adequate disclosure here. Stocks & bonds, other equity investments, cash, even houses and cars are easily valued. But things that are tougher to value are less straight-forward investments like businesses you own, investments in wells or mines, artwork, and so on.

This is where a ‘gift tax valuation’ comes into play. That’s what the IRS orders in order to determine the value of these things in the event that you give them away. That’s where things can get a bit sticky.

If you’re not well-versed on the subject, it’s always best to get professional help. This piece was inspired by a similar piece written by SPARDATA, a Maryland Business Valuation Company that specializes in gift tax valuation among other things. I’d recommend checking them out if this is something you need help with.