There’s nothing like giving the gift of something to someone special in your life. Whether it’s a stack of cash you give your son to help him with a college education, that car Grandpa bought Junior for his high school graduation or something else, there’s no denying the satisfaction of knowing you’ve made someone’s day by giving them an item or service they’ll value for years to come.
But when it comes to the financial aspects of gifting, there are a few things you need to know. One of those is how much gift tax you may be liable to pay.
How Much Gift Tax Can I Avoid?
The good news is that most Americans won’t need to worry about paying any gift taxes because of two key exemptions: the annual exclusion and the lifetime exclusion. These amounts are based on your age and marital status, so it’s important to consult with an experienced financial professional before making any major gifts.
1. The $15,000 annual exclusion
When it comes to gifting, the best way to avoid having to pay gift tax is to stay within the $15,000 annual exclusion. If you aren’t married, you can also split your gift tax exclusion with your spouse, so you can each gift $15,000 per year to as many recipients as you like without triggering any additional taxes or penalties.
2. If you’re a single taxpayer, you can only give away $25,000 in 2022 and $175,000 in 2023 tax-free.
3. If you’re married, you can both gift up to $32,000 in 2022 and $204,000 in 2023 tax-free.
4. If you’re a single taxpayer, the maximum amount you can give to a family member is $175,000 in 2023 and $164,000 in 2022.
5. If you’re married, you can both give up to $32,000 in 2022 and $204,000 every year tax-free.
6. If you’re a single taxpayer, there are many ways to reduce your gift tax liability.
7. If you’re a single taxpayer, a trust is an ideal way to minimize your gift tax liability.
8. If you’re a single taxpayer, charitable contributions are another effective way to lower your gift tax liability.
9. If you’re a single taxpayer, gifting appreciated assets is an excellent way to keep your gift tax liability to a minimum.
10. If you’re a single taxpayer, gifts to tax-exempt organizations are an excellent way to avoid gift tax on taxable transfers.
11. If you’re a single taxpayer, it’s essential to file a gift tax return if you have more than the annual and lifetime exclusions in place.
12. If you’re a single taxpayer, this is a complicated topic and you should hire a qualified financial advisor to prepare your gift tax return for you.
13. If you’re a single taxpayer, your gift tax return should be filed no later than April 15 of the following year.
A reputable, trusted local tax Endorsed Local Provider (ELP) can answer any questions you have about your gift tax situation and make sure you don’t owe any extra taxes. They’ll take the time to get to know you and your personal financial situation so they can help you eliminate any uncertainty when it comes to your taxes!