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What You Need To Know About Gift Tax

During the holiday season, many people are generous enough to send gifts to family, friends, and other loved ones.  Giving a gift at this time of year is something that almost everyone will be doing and it is becoming more common to see money given as a gift, as it is something that allows its recipient to use as they see fit.  Did you know that depending on the amount of money you are gifting someone, there may be a tax associated with that gift?

If you plan to give someone money this year, here is what you need to know about gift tax.

Gift tax is a tax that may be assessed by the federal government on gifts of money, or property, to people while getting nothing in return.  Generally speaking, the Internal Revenue Service can consider any gift in which the gift giver is not receiving something in return (that has some value associated with it) as a taxable gift.  There are some exceptions to this rule depending on how the gift is given. 

Levin Law Group, with offices in New York and New Jersey, is very familiar with gift tax, so our estate planning attorneys can inform you about gift tax.  If you are working with an estate lawyer from our firm, you can rest assured that if gift tax is involved in any of your estate planning, you will be made aware.

So, who would be responsible for paying gift tax?  The person giving the gift would be responsible for paying the gift tax in most cases.  There may be circumstances in which the person receiving the gift may agree to pay the gift tax instead.  In most cases, a gift tax may not even be assessed.  There are certain situations in which the person receiving the gift may be taxed.  For instance, if a gift that is given is something that would earn interest, produce dividends, or that the recipient would collect rent from, that income more than likely is taxable. 

Gift tax would be assessed on gifts that exceed the annual exclusion.  For 2021, the annual exclusion is $15,000.  This amount increases to $30,000 for gifts given by a married couple.  Any gift of cash or assets that would exceed that amount may fall under gift tax.  This would apply to each individual that you give a gift to and in those cases, the gift giver would need to file IRS Form 709, which would have information that discloses the gift.

In addition to the annual exclusion, there is also a lifetime exclusion.  Currently, the lifetime exclusion is 11.7 million dollars.  This amount is generally doubled for married couples.  For each person that you give a gift to, should it exceed that year’s annual exclusion, it would then be put towards the lifetime exclusion. 

For example, if you gift an individual $75,000 this year, $15,000 would first go towards the annual exclusion and the remaining $60,000 would go towards the lifetime exclusion.  You would need to file for a gift tax return, but you may not need to pay a gift tax.  The IRS may keep track of your lifetime exclusion.  Throughout your life, if you are generous enough to have exceeded your lifetime exclusion, you may need to pay a gift tax. 

Not every gift is taxable.  Some exclusions would apply depending on the gift. 

Gifts that can be excluded from gift tax include the following:

  • Gifts that are not more than the annual exclusion of the calendar year in which they are given
  • Gifts of paying for someone’s tuition or medical expenses
  • Gifts to your spouse
  • Gifts to a political organization for its use

Some of you may be wondering whether or not you can deduct gifts on your income tax return.  Unfortunately, unless the gift you are making is to a qualifying charity or organization, you cannot deduct a gift from your income tax.

Any time that you are planning on giving a large gift of cash or asset(s) to someone, it is highly recommended that you work with an estate planning attorney to guide you through the process.  When working with an estate lawyer from Levin Law Group, we will ensure that things are handled properly and that you know whether or not you would have to pay a gift tax.

If you are in the New York or New Jersey area and need to speak to an attorney for estate planning or any of the other services we provide, contact us today to see how we can help.  To set up a free consultation today, call us at 1-800-517-5240.