gift tax

Giving someone a gift is something that can bring joy to anyone. But it also has the potential to bring some tax consequences — especially for people who aren’t as financially savvy.

It’s no secret that taxes can be complicated, so it’s important to make sure you have the right information before making any significant financial decisions. If you have questions or concerns about your taxes, don’t hesitate to reach out to an endorsed local provider (ELP) and let them take the guesswork out of it for you.

A Gift is Anything Without a Receipt

In general, gifts are money or property that you give to another person without expecting to receive anything in return. This includes cash gifts, property transfers like a car or boat, interest-free loans or forgiven debts, and more.

The IRS classifies a gift as any transfer of money or property that doesn’t receive something of equal value in return, regardless of the amount. This can include everything from a simple stack of cash you give your son to help him buy a bike for his college graduation to a new car Grandpa bought Junior to drive when he goes off to school.

There are two types of taxable gifts: annual and lifetime. Generally, the former applies to a donor’s gifts that exceed $17,000 in 2023 ($16,000 if married).

If you gift more than this amount, you’ll have to file a gift tax return with the IRS to report your gifts and pay the applicable tax. It’s a good idea to get the advice of a tax professional before you make any large gifting moves, so you can be sure to keep your finances in check.

A gift is also any transfer of property that is less than the full market value, excluding gifts to your spouse, to an educational institution, to a political organization or to a charity.

While the gift tax can be an unwelcome surprise for some, it’s important to remember that many people don’t actually owe any gift tax — thanks to both an annual gift exclusion and a lifetime exemption.

Using Your Exclusion

In 2021, each individual has a $15,000 annual exclusion that they can use to make unlimited gifts and avoid a gift tax. A couple has a $30,000 exclusion, and if you gift more than $17,000 in a single year, you’ll need to file a gift tax return and pay the appropriate taxes by April 15 of the following year.

Once you’ve used up your annual and lifetime exclusions, it’s time to start thinking about a taxable gift, which is when you transfer money or property that’s more than your annual and lifetime exemptions. This can be tricky because the taxable gift rate can vary between 18% and 40%, depending on the amount transferred.

The taxable gift is typically paid by the donor, but if you’re legally incompetent before the gift is made, you or your estate may be responsible for paying the tax.

Previous post Exploring the Mystique behind Black LED Lights: A Guide to Their Uses and Benefits
Next post Lampadari per la cucina: Illuminating Your Cooking Space with Style
Benfersfurniture

Best Content Sharing Site

Sunday, May 19, 2024