If you have significant assets, making strategic gifts throughout your lifetime is a way to reduce the amount subject to taxes when you pass on your estate. It’s important to know the rules and regulations around giving large-scale gifts, though, so you can maximize your tax savings.
Gift Tax Basics
The gift tax is essentially what it sounds like: a tax assessed on gifts (money, property, or other assets) given to someone else. Gift tax is typically paid by the person making the gift, not the person receiving it.
However, there is some good news. Along with the gift tax, there’s also a $15,000 annual exclusion. Individuals can give away up to $15,000 in money, goods, or other assets each year to another person without worrying about the gift tax.
This annual exclusion applies per recipient. That means you could give away $15,000 to three different people, and you still wouldn’t be over the annual limit.
There is also a lifetime maximum exemption from gift tax. If you make a gift in excess of $15,000, you can apply that amount against your lifetime exemption of $5.6 million (for individuals). You still have to file a gift tax return to keep track of the gift’s value, but you won’t owe any tax until you give away over $5.6 million.
Why Is There a Gift Tax?
The gift tax exists, in part, as a complement to the estate tax. By subjecting gifts in excess of $15,000 subject to the tax, the IRS ensures wealthy individuals aren’t able to totally avoid the estate tax by giving away all their property or assets prior to death.
Gift Tax Planning
The above information only touches on the surface of the gift tax and overall estate planning. This part of the tax code is complex, to say the least! In order to maximize your tax savings over the long term, it’s advisable to work with a tax planning professional to determine how to best serve your interests and the interests of your family, heirs, or beneficiaries.
The team at Taxation Solutions, Inc. is available to help clients in Memphis understand the various parameters of the gift tax and make informed decisions regarding their assets. Give us a call today to find out how we can assist with all of your long-term tax planning needs!