Question

Which of the following is a reason for making gifts?

A) To avoid depreciation in value
B) Gift tax exclusion attracts more estate tax
C) Marital deduction allows gifts to be tax-free
D) Annual inclusion amount will be more.
E) There is no tax exemption for charitable contributions

Answer 1

Reasons for making gifts include the marital deduction, annual exclusion amount, and tax deductions for charitable contributions.

Step-by-step explanation:

One reason for making gifts is the marital deduction, which allows gifts to be tax-free. This deduction means that married couples can transfer unlimited amounts of money or property to each other without incurring any gift tax. For example, if one spouse gifts a large sum of money to the other spouse, it would not be subject to gift tax.

Another reason for making gifts is to take advantage of the annual inclusion amount. Each year, individuals can gift a certain amount of money to another individual without incurring any gift tax. As of 2021, the annual exclusion amount is $15,000 per recipient. So, if someone gifts $15,000 or less to another person in a year, it would not be subject to gift tax.

One popular gift option is charitable contributions. These gifts are tax-deductible, meaning the person making the gift can deduct the value of the gift from their taxable income. While it may not directly avoid gift tax, it can reduce the overall tax liability of the person making the gift by lowering their taxable income.