At its most basic level, the gift tax applies to any gift of money or property. However, that doesn’t mean you owe tax on every gift you give! There are a variety of exceptions that enable you to make gifts without paying the gift tax. Here are some basics to be aware of:
- The annual exclusion (for 2016 and 2017) means you can give up to $14,000 to each recipient without having to pay the gift tax.
- Both you and your spouse can give up to the annual exclusion limit each year, meaning you can give a combined $28,000 to each recipient without triggering the gift tax.
- Gifts, except for those to qualified charitable organizations, are not tax deductible.
- Gifts that exceed the annual exclusion limits are typically taxable. However, as of 2016, each taxpayer is entitled to give a total of $5.45 million in gifts over their lifetime before they start owing gift tax. So, for example, if you gave $464,000 to someone in 2016, $14,000 of that gift would be excluded from gift tax by the annual exclusion. The remaining $450,000 would normally be subject to the gift tax, but if you have not already given away $5.45 million in your life, that $450,000 would be covered by the lifetime exclusion. You would then have $5 million of the lifetime exclusion remaining.
At Pro Tax Resolution, we understand that the gift tax exclusions can be complicated. We’re here to help you determine the best approach to tax planning. There are pros and cons of giving away money and property versus providing it to heirs in your estate, and we can help you talk through the tax benefits of each approach. Let us put our 40 years of expertise to work to for you!