When you give a gift of a certain amount, it may be subject to a gift tax. Fortunately, there are a few ways to avoid this tax and generous limits on how much you can gift to family members each year. If you are looking for a way to pass on assets to your loved ones while you are still alive, contact a Washtenaw County estate administration attorney from our firm.
Who Pays the Gift Tax?
The person giving the gift is the one responsible for paying the gift tax. Under current rates, a gift of up to $10,000 would be taxed 18%. If you give between $10,001 and $20,000, the gift tax increases to 20%. It continues to rise as the value of your gift rises though.
Those rates can seem steep, but we have some good news. Many people never have to worry about paying the gift tax. This is because there are exemptions that allow you to gift a certain amount to each person each year. There is also a lifetime limit that many people never even come close to.
Are There Exemptions for the Gift Tax?
Each year, you are allowed to give $18,000 to an individual without worrying about paying a gift tax. This limit is per individual, so you can give $18,000 to your son, another $18,000 to your daughter, and $18,000 to a grandchild. If you do give more than that to a loved one in a given year, you do have to report it.
This does not mean that you will have to pay tax on it though. This is because there is also a lifetime exclusion of $13.61 million. So if you give someone more than $18,000, the excess is tracked, but unless you reach this high lifetime limit you are unlikely to owe any gift taxes.
What Can Be Considered a Gift?
You should also remember that it’s not just cash gifts that could trigger the need for some extra paperwork on your taxes. If you spend a certain amount on other types of gifts, you may need to report that gift to the IRS. Some common presents that can count towards your gifting limits include paying for a wedding, treating someone to a vacation, or purchasing a car for a loved one.
Is Gift Giving a Part of My Estate Plan?
Making gift-giving a part of your estate plan is a great idea. It can help you lower your potential estate tax liability. Estates valued at a certain amount are subject to federal taxes. Lowering the value of your estate by giving gifts to loved ones is a valid way to reduce your potential tax burden.
Schedule Your Consultation
If you are trying to figure out the best way to divide up your assets and take care of your loved ones, contact Collis, Griffor & Hendra. We have decades of experience in the estate planning field, so schedule your consultation today.
