Whoa, how much can I gift?
Gifting money is one of the more confusing topics. Many people want to gift money to loved ones (family, friends, others) as a way to show they care, to provide needed funds, or simply to give away some of their assets while they are still alive. Most people assume that someone (either they or the recipient) will be taxed when gifts are given in this way. In reality, at the current exemption levels, that’s rarely the case.
There are actually two inter-related topics that need to be explored when it comes to giving:
The annual gift tax exclusion.
The lifetime federal gift and estate tax exemption.
Let’s start with the annual gift tax exclusion. In 2024, an individual is allowed to gift up to $18,000 to an individual without having to file a gift tax return for the year. If you are married, you can gift an individual double that amount, or $36,000 in calendar year 2024. You don’t owe any tax, and you don’t have to file any forms.
Let’s use an example: If you are married and have three married children and two grandchildren, you and your spouse can give up to $36,000 to each of your children, their spouses, and the three grandchildren in 2024. You don’t have to file a gift tax return or pay any tax. For 2024 then, you can give a total of $288,000 in tax-free gifts.
In summary, if you choose to give up to $18,000 in 2024 to an individual or $36,000 if you are married, you don’t pay any gift tax, you don’t file any forms, AND, it doesn’t count against your lifetime federal gift and estate tax exemption……
But wait, there’s more! Let’s tackle the federal gift and estate tax exemption. Each of us has an individual lifetime estate and gift tax exemption. As of 2024, that exemption is $13.61 million. And for married couples, that number doubles to $27.22 million. That’s right, unless your estate is bigger than $13.61 million or $27.22 million, you currently will not owe anything to the federal government for your estate. During your lifetime, then, you are allowed to give away up to that amount and not owe any taxes. Even if you were to give away, say $500,000 in a calendar year, you wouldn’t pay tax on that gift. Rather, you would file a form to let the IRS know you gave that amount, and it would count against your $13.61 million total.
As I mentioned before, if you gift up to the $18,000 limit, those gifts don’t count against your $13.61 million lifetime gift tax exemption amount. You only start to count against that $13.61 million limit if you give more than the $18,000 to an individual in a calendar year. And as mentioned above, if you are married, you can give $36,000 to an individual.
But wait, there’s even one more: You can even raise the annual number higher if you’d like, by making unlimited payments directly to medical providers or educational institutions on behalf of others for qualified expenses. Those gifts aren’t taxable, and they don’t affect your $18,000 annual gift exclusion.
Gifting can be a valuable planning tool as you manage your estate. A financial planner can help you with these gifting strategies along with more complex considerations such as when to gift appreciated stock or property.
Jared
Planning Pays Dividends
Gift exclusion and lifetime estate information is from IRS.gov and Kiplinger.com
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