Dear Clients and Friends,
“Gifting” rules can change and the tax implications or lack of tax implications as well as the limits need to be made clear and understood so here goes…
CLIENT QUESTION:
What amount can be “gifted” each year?
MY RESPONSE:
A lot more than you think! It seems to be well known that there is a yearly limit of what you can gift before you are taxed…but this is totally false. In fact, if you wrote a check to your children for $1 million today, your tax would be ZERO.
Okay, wait a minute! You probably thought that if you gifted more than $10,000 there would be a tax. Or is it $11,000 or $12,000 or $13,000 or $14,000 or $15,000? Confused yet?
Well, the answer is that there is a $15,000 rule but not a tax necessarily when you gift more than $15,000!
Oh, and by the way, what I am about to explain is the federal law. NEW YORK HAS NO GIFT TAX! (although taxable gifts you make within three years of your death will be taxed as part of your estate for estate tax purposes).
The federal law is that if you give away $15,000 (per person) or less it is like it never happened. If you give away more than this it is a taxable event but NO TAX IS DUE. You see, the $15,000 per person rule is a reporting event, not a tax. If you give away more than $15,000 per person, you are supposed to file a gift tax return so that the government can keep track of how much you gave away during your lifetime. Your lifetime limit is currently $11.7 million (there is a new proposal to bring it down to about $6 million). Once you have given away more than $11.7 million, you will then be taxed currently on your gifts that exceed $15,000 per person. Obviously, this is only a problem for our very affluent clients. Those of you who will never approach the gift tax exemption are still supposed to file a gift tax return on gifts greater than $15,000 per person even where no tax will ever be due. While I advise my clients to file these tax returns, I have noticed that most tend to ignore this advice. 😊
Incidentally, our affluent clients are frantically giving away their money now before the exemptions go down!
I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.
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