Make Sure to Let Your Tax Preparer Know About All Those Partridges

Egg-laying geese? French hens? Maids milking cows? Gifts from your “true love” were a whole lot different in 1780 when the Twelve Days of Christmas was written, when compared with today’s iPhones and Echo Dots. But if nostalgia is your thing and you want to start doling out piping pipers and turtle doves, you might want to prepare for the tax consequences, since your presents will be subject to gift tax.

The federal gift tax regime is essentially divided into two parts, an annual exemption and a lifetime exemption. The annual exemption is the amount you can give per person, per year, tax-free. The amount can either be a single lump sum gift or it can be in small increments throughout the year, but in either case you’ll be limited in 2019 to $15,000 per donee. For every dollar you give in excess of your $15K annual exemption, you begin to tap into your lifetime exemption. In 2019, the maximum amount a person can give away tax-free during life or at death is $11.4 million. It’s twice that for married couples, but spouses may make unlimited gifts to each other without triggering the annual or lifetime exemptions.

So let’s say that you and your true love have not yet decided to make that leap and tie the knot. And let’s say your true love starts gifting drumming drummers and partridges in pear trees your way this holiday season. Thankfully for the past 36 years, the folks over at PNC have put together the Christmas Price Index to help make valuation work easier. So if your true love decides to follow the song to its literal interpretation (i.e., day 1 you receive a partridge in a pear tree, then day 2 you receive those turtle doves and a second partridge in a pear tree), you’ll have ended up with 364 gifts at the conclusion of the 12 days and your true love will have bestowed on you roughly $170,298.03 worth of gifts.

But wait! The two of you aren’t married, so that means there’s no unlimited gifting. Only the first $15,000 worth of gifts is tax-free for your true love. (Fun fact: the seven swans-a-swimming is ultimately the tipping point.) Now, fret not, your true love probably isn’t going to have to pay tax on these gifts. As previously mentioned, once your true love exceeds the $15,000 annual exemption threshold, he or she starts to erode their lifetime exemption. So, if your true love follows through and gives you the full 12 days’ worth of gifts, he or she will only cut into their lifetime exemption and no tax is due.

As a loving partner, though, remember that one of the best gifts you can give back to your true love this holiday season is reminding them that they should also report this to their tax preparer so the appropriate gift tax return can be completed.

If you intend on gifting the Twelve Days of Christmas this year, or any other gift in excess of the annual exemption, the tax team as Schneider Downs is happy to help advise or answer any questions you may have.