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Simple English definitions for legal terms
gift-splitting election
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A quick definition of gift-splitting election:
A gift is when someone gives something to another person without expecting anything in return. It can be a thing or property that is transferred from one person to another. There are different types of gifts, such as a charitable gift, which is given to a nonprofit organization to help the community, or an inter vivos gift, which is given during the giver's lifetime. A split gift is when a married couple combines their gift tax exclusions to give a larger gift. A gift-splitting election is when both spouses agree to split the gift for tax purposes.A more thorough explanation:
A gift-splitting election is a tax strategy used by married couples to combine their annual gift-tax exclusions and make a gift to a third person. This means that both spouses treat the gift as being made one-half by each spouse, making the gift eligible for two annual exclusions instead of one. For example, if the annual exclusion is $15,000, a married couple can make a gift of up to $30,000 to a third person without incurring gift tax.
Example: John and Jane are married and want to give their son a gift of $25,000. They can make a gift-splitting election and treat the gift as if each of them gave $12,500, which is below the annual exclusion limit. This way, they can avoid paying gift tax on the gift.
This tax strategy is useful for married couples who want to make a large gift to a third person without incurring gift tax. By combining their annual exclusions, they can make a larger gift without having to pay taxes on it.