Smart Living: What Is the Gift Tax? Relax, You Probably Don't Owe It - - PressFrom - US
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Smart Living What Is the Gift Tax? Relax, You Probably Don't Owe It

19:45  18 october  2019
19:45  18 october  2019 Source:   goodhousekeeping.com

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The federal gift tax applies to all gifts that you make during your lifetime, but few people will ever have to pay it . How Is the Gift Tax Calculated? Most people don ' t have to worry about paying this tax . Share. Pin. Does that sound intimidating? Take a deep breath and relax . It 's not as bad as it sounds.

If you ’re gifting large enough amounts that you ’re flirting with the gift tax , then you should probably be working with a financial advisor who can manage If you don ’ t already have an advisor, you can find one today with SmartAsset’s free advisor matching tool. Simply answer a few questions about your

When tax time rolls around, you may end up doing a little extra paperwork if you've really made like Saint Nick this year and given out a lot of high-ticket gifts.

a person using a laptop: While you have to spend a pretty penny to hit your gift tax limit, you don't want to get hung out to dry by tax time. Here's what you need to know.© Prapass Pulsub - Getty Images While you have to spend a pretty penny to hit your gift tax limit, you don't want to get hung out to dry by tax time. Here's what you need to know.

How much is the gift tax?

The gift tax rates range from 18% to 40% but most people won't ever have to pay it. That's because the IRS encourages generosity with two types of exemptions, annual and lifetime. The exemptions for 2020 had not been released as of press time, but for 2018 and 2019, the annual exclusion is $15,000 and the lifetime exclusion is $11.4 million. So unless you're set to pass along extreme wealth to your successors, you probably don't have to worry about the gift tax.

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Gift tax rules allow tax -free gifts up to ,000. How does the gift tax work? Do you owe taxes on a cash gift ? How much can you give before paying Before you start tallying up every dime you gave to your niece as a present, don ’ t worry about it . Most presents to friends and family will fall below the

Understanding this tax is very important if you make gifts to others. Mistakes are very easy to make and can be very costly and time consuming. First the simple part. If you receive a gift you can relax . You won’ t have to pay any tax on that transfer. You don ’ t even have to report the transaction.

"Gift taxes are assessed against your estate when you pass away," explains Priya Malani, founding partner at Stash Wealth financial planning. "The amount you’ve gifted in excess of the lifetime exclusion will count against your estate and you’ll have to pay taxes on the difference."

Keep in mind that the IRS lumps together the value of your estate and your lifetime gifts, then deducts all of that from the $11.5 million limit. The difference can be taxed up to 40%, depending on the amount left over. But that's pretty rare. Only two out of every 1,000 estates owed estate taxes in 2017 — and the annual exemption that year was about half the current exemption, at $5.49 million.

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Gifts that don ’ t count. Some transfers of money are never considered to be gifts , no matter the amount. For purposes of the gift tax , it ’s not a gift if Estimate your gift taxes owed for 2017 or 2018 with TaxAct’s gift tax calculator. Step 1: Select your tax year Step 2: Select your filing status Step 3

The gift tax isn' t likely to affect you , but there are some numbers to keep in mind so that your Our opinions are our own. There are a lot of things to worry about in life, but the gift tax probably isn’ t Many people don ’ t get hit with the gift tax , because the IRS generally doesn’ t care about what you

What counts as a gift?

According to the IRS, the gift tax applies to any transfer of property by one individual to another while receiving nothing, or less than full market value, in return. That includes transfers of property you never intended as a gift, as well as some circumstances you might not even consider.

"Some unexpected things can trigger having to file gift tax paperwork," Malani explains. In addition to the circumstances listed above, the IRS considers every transfer of money or property that you won't be fairly compensated for a "gift." That includes lending a friend or family member money interest-free, or even paying medical bills or your child's college tuition. But there are some exceptions to the gift tax.

Exemptions to the gift tax

Charitable donations, giving to political campaigns, and giving to your spouse don't count toward the gift tax, the IRS says. But if you want to pay for expenses for someone else, you can still do that without paying the extra tax. Just watch how you direct the funds. If you write your niece or nephew a check for their college tuition, that's taxable as a gift. Or if you pay off grandma's hip replacement by depositing the money in her account, that's a gift too. But paying tuition or medical bills directly to the institutions won't trigger the gift tax, says certified financial planner Linda Rogers of Planning Within Reach.

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You ’re probably thinking that isn’ t fair, but the tax was created to close a bit of a loophole. There is some good news. First, the amount of the gift that triggers the gift tax is relatively high which You ’d still have to file the IRS gift tax form to record this excess, but you wouldn’ t owe any gift tax on that

Gifting to a Child Tax -Free. Gifts are only taxable over a certain threshold known as the annual gift tax exclusion. You probably still won’ t have to pay the tax if you exceed the annual gift tax exclusion, but you If you don ’ t remit payment with your gift tax return, that extra ,000 in our example will be

Putting money into a 529 college account is also considered a gift, but that type of savings account also counts as an exception. You can save five years' worth of college cash up front, or $75,000, without triggering the gift tax.

It's also important to note that the gift tax is assessed per person, per gift, so if you want to help your child pay for college, you and your spouse can each give them $15,000 per year without filling out the IRS forms. And if you're feeling especially flush after that, you can also give your other child a car to even things out (for example), as long as you and your spouse don't each exceed that $15,000.

Do you have to pay?

The giver always pays the gift tax, so don't worry if you're on the receiving end of someone else's generosity. But most people shouldn't worry about it, both Rogers and Malani explain.

"If you expect to die with extreme wealth, that assumption changes," Malani adds. "For example, if you expect your estate tax rate to exceed your gift tax rate, it may make sense to pay gift taxes in the year you gift and avoid the overage eating into your ability to pass on a larger portion of your estate, tax-free." If that sounds like you, sit down with your accountant to figure out your options.


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