“Gift Tax” – the very term can squeeze all of the joy out of giving or receiving a present. But the reality is, most of us will never pay a gift tax. Let’s look at why:
First, let’s understand what the gift tax is. The gift tax applies to transfers of money or property to recipients other than a spouse or dependent. However, most presents – whether toys from Santa at Christmas, coffeeshop gift cards from friends on our birthday, or employer tokens of thanks upon retirement – aren’t impacted by this tax. This is because of a generous annual gift tax exclusion.
Recipients do not need to worry about gift tax rules since they only apply to the giver. (Recipients of certain gifts of property may need to track its value for future capital gains issues, but that is beyond the scope of this article. Contact us for more information on this topic.) And givers have a generous amount - $18,000 for 2024, $19,000 for 2025 – that they can confer each year to an individual before the gift tax applies.
Note that the annual limit is per person, so a taxpayer can give their adult child up to the limit, then bestow the same amount to the child’s spouse and each grandchild. Likewise, the taxpayer’s spouse can hand over the same amount to their child, child’s spouse, and grandchildren without incurring the gift tax. In other words, in 2024 Rudolph and Clarisse can each give their son Frosty, his wife Karen, and their children Raphie and Cindy Lou $18,000 (a total of $144,000) before triggering gift tax rules.
Once the threshold is passed, the news remains good. The giver still has no actual tax due, but they must file a gift tax return (Form 709). There is a lifetime exclusion, currently $13.61 million, that can be gifted before taxes are due. The purpose of Form 709 is to keep track of the taxpayer’s gifts over their lifetime to make sure the lifetime exclusion has not been exceeded.
All of this is to point out that most people never have to actually deal with the gift tax. However, as with all tax matters, it’s always a good idea to discuss any large gifts you make with your tax professional to make sure you do not need to file Form 709.
Since it’s better to give than receive, go ahead and give with a cheerful heart, knowing that you probably don’t need to worry about the gift tax.
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