The holiday season is filled with family gatherings, holiday parties, and gift giving. While passing out presents this year, keep in mind that large gifts may be taxable and may even affect your estate plan. In nearly every case, the person giving the gift is responsible for paying gift tax—not the recipient. What does this mean for you and how much can you gift annually without having to pay the gift tax?
What is the Gift Tax?
Gift tax is a tax on the transfer of money or property to another person while getting nothing (or less than full value) in return. Writing a check, gifting investments, or giving a car to someone, other than your spouse, is considered a gift. The IRS enforces a gift tax limit on the amount you can give annually and the amount you can give over the course of your life. Stay below those limits and you can gift generously without the threat of taxes or complicated forms.
The Annual Gift Tax Exclusion
As of 2018, the annual gift tax exclusion is $15,000 per recipient. This is the amount of money you can gift to one person over the course of the year, without having to pay any gift tax. Each year, you can gift up to $15,000 to as many people as you would like. There is no limit on the number of recipients, only on the total amount of gifts you can give. If you are married, you and your spouse can each gift up to $15,000 to a recipient. So one recipient could receive a $30,000 gift from you and your spouse before the Gift Tax is imposed.
If you gift more than the exclusion ($15,000) to a single recipient, you will need to file tax forms disclosing those gifts to the IRS. You may also be responsible for paying taxes on the gift. The tax rates range from 18% to 40%. However, you won’t have to pay any taxes if you haven’t hit the lifetime gift tax exemption.
The Lifetime Gift Tax Exemption
The IRS allows each person to gift up to $11.2 million over their lifetime without having to pay gift tax. This lifetime exemption doubled from 2017 under the Trump Tax Cut. To learn more see our article What Trump’s Tax Cuts Mean for Your Estate Plan. If you are to gift one recipient more than $15,000, you will need to report it to the IRS. The remainder will be deducted from your lifetime gift tax exemption. Some taxpayers will never hit the gift tax limit of $11.2 million during their lifetime, but this lifetime exemption becomes important again after death and when passing on an estate.
To learn more about the annual gift tax exclusion and how your estate plan is affected by changing tax rates contact Atlas Law.
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