3 things to know about gift tax
It may seem a little early to start planning for the holiday season, but if you’re looking to make a significant gift to a cherished friend or family member this year, it’s important to educate yourself now about the gift tax.
Though many people are not in a financial position to make a significant monetary gift, it does come up from time to time. Perhaps you are contributing to a down payment for your child’s first home, or purchasing a shiny new car for your favorite grandchild. Or maybe you are just looking to make a loved one’s day! No matter the reason, here are three things you need to know about the federal gift tax.
- The federal gift tax exclusion amount is $15,000.
Any gift made in the amount of $15,000 and under will face no tax consequences. Additionally, you can make gifts of $15k and under to as many people as you’d like without tax consequences. However, as soon as you cross the threshold of $15,001+, you may have to claim the gift on your taxes. But wait..there’s more! The gift tax is only required if you have reached your lifetime gift tax exemption amount of $11.7 million (as of 2021). So, the vast majority of gift givers – even extremely generous ones – will not have to worry about paying the gift tax. The gift tax rate does fluctuate in line with inflation, but due to low rates of inflation in the past couple years it has remained steady since 2018. - But…you still have to claim the gift to the IRS.
As explained in point one, the lifetime gift tax exemption of $11.7 million means most people will never have to pay a cent of gift tax. But that doesn’t mean the IRS doesn’t want to track your giving. In order to claim your lifetime exemption, you must file IRS form 709 to claim a gift-tax return. Note: you only need to claim gifts subject to the gift tax, and there are several notable exemptions…keep reading for more information. - Not all gifts of $15k+ are taxed.
There are certain types of gifts that are exempt or excluded from gift tax. Gifs of any size to your spouse (as long as they are a U.S. citizen) are not subject to gift tax. Gifts in excess of $15k made to a child, however, are subject to gift tax. Gifts larger than $15k made to a charitable organization will not face tax consequences.
Additionally, gifts made directly to an educational institution in support of someone’s college tuition or related school expenses are excluded, as well as gifts made directly to a hospital or medical provider to pay for a loved one’s medical bills. Please note: you must make these gifts directly to the school or medical facility – if you give them to your loved one to pay to the facility, the gift will likely be subject to gift tax.
What about estate tax?
Like the gift tax, estate tax is another area that only the most wealthy people will need to worry about. If you are a high-net worth individual with questions about gift giving and estate tax, the best way to gather information and plan for your future is to consult an experienced estate planning attorney. At Margerie Law, I help people at all stages of life with expert estate planning services, including tax considerations. I proudly serve individuals and families in Wauwatosa, Milwaukee, Brookfield, Waukesha, Menomonee Falls, and surrounding communities. If you’ve got questions about how gift or estate tax will impact your plans for the future, give me a call today.
