Gift Giving - The Tax in Giving

For most of us, the joy is in gift-giving; however,  when it comes to cash or estate gifts, there is such a thing called the 'gift tax,' and while complicated, there are several provisions, so you're able to avoid the tax altogether.  The way the gift tax works is essential in understanding how it can be avoided.

In life or death, any money that is transferred to someone else is subject to estate and gift-tax.  The government recognizes that accounting for every penny given, within a year, is unrealistic and established a $15,000 per person maximum gift amount without incurring taxes annually.  The key here is 'per person,' and if you're married, you and your spouse each qualify for and additional   So if you'd like, you could give a gift of $15,000 to each individual and then also provide a gift of $15,000 to the individuals as a couple totaling $60,000, all of which is exempt.  Some other gifts may not require taxation if over the maximum $15,000. Contributions to charity, tuition, and medical expenses may be tax-free, and when giving, be sure the gift goes directly to the institution in question.  Gits to your spouse, who is a U.S citizen, are also void of the tax.  Even if the gifts don't qualify for exemptions, you do receive a lifetime exemption from estate and gift tax to $11.58 million as of 2020.

$15,000.

The bottom line is your cash or estate gift giving would have to be a pretty substantial amount of money or property before having to pay up!   Lewis CPA can help you further if you need clarification or additional insight!

What is the Gift Tax?

Did you know that, in some cases, if you receive a gift, taxes may have to be paid on that gift?

There exists a tax in America known as the “gift tax,” and it’s a tax assessed on the value of a gift given from one person to another. Of course, if the gift comes from your spouse and your spouse is a citizen, the gift is exempt from taxation. But, in other cases, gifts and their value may be taxed. 

Determining if a Gift is Taxable

Usually, the type of gifts that are taxed are things like jewelry, property, or stocks.

You can determine if a gift tax applies by considering whether or not the gift recipient pays for the full fair market value of the property. If not, a gift tax will apply.

Likewise, think about whether or not the gift giver will one day get the property back. If the answer is no, the gift tax applies.

Who Pays?

If a gift is indeed taxable, you may be wondering who has to pay up when it comes to the tax.

The answer is the person giving the gift. The giver has to pay the tax, report the gift to the IRS via a special gift tax return form, and also file and pay state taxes if required.

The recipient may have to pay capital gains tax if they sell the property they’re gifted. But, other than that, they just get to enjoy their gift without any worries or obligations, proving it’s a lot nicer to be on the receiving end of this transaction.

If you’re thinking about giving a gift or accepting one and you have questions related to the gift tax and how it may affect you, remember that you can always seek advice from a financial professional.

Taxes that Affect Estates

We are all going to leave things behind when we die. And, if we plan carefully, those things can go to the people we want them to, like our family members and friends. However, it is important to remember that our estates are affected by certain taxes, and we need to be aware of and plan for those taxes if we want everything to ultimately go as we planned.  

Gift Taxes

One of the first taxes that can affect an estate is what is known as the gift tax. Federal law mandates that a person can not give more than $14,000 worth of gifts to a single person tax-free. Once that value amount is reached and surpassed, a gift tax comes into play.

Of course, there are ways around paying the gift tax. For example, there is a lifetime gift tax exemption of $5,340,000 that can help to offset taxable gifts and keep you from paying taxes out of your own pocket.

To learn more about gift taxes and related exemptions or if you’re concerned about how this tax will affect your estate, be sure to speak with a tax professional.

State Inheritance Taxes

Some states collect special inheritance taxes from the beneficiaries of a deceased person’s estate. These states include:

l  Iowa

l  Pennsylvania

l  Kentucky

l  New Jersey

l  Maryland

l  Nebraska

Fortunately, not all beneficiaries have to pay the tax. Surviving spouses of the deceased and reputable charities are exempt from the tax. Other exemptions are possible in some of these states as well, so it’s always best to check with your tax adviser if you have questions or concerns about possible taxation of your gift.