Blog by Rob Dukes – Finance Administrator, Admin Team Lead
This is a common question we get from clients, and the requirements may surprise you. The “Gift Tax” is actually a misnomer for the vast majority of taxpayers. The gift tax obligation is limited to reporting a gift to the IRS, but not paying a tax on the gift. The reporting is done on a return that may need to be filed on the transfer of money or property to another person without receiving at least equal value in return. Many times the ones asking this question are grandparents that may want to give their grandchildren money, or a car.
The key to the gift reporting is to know whether or not the reporting requirement applies to you. The primary factor is the value of the gift and if it will surpass the annual limit.
For 2019, the annual exclusion amount is $15,000. This means you can give any one person $15,000 or less a year, and not have to report it on a gift tax return. The annual exclusion limit is applied on a per-recipient basis, and isn’t a cap on the total amount of all gifts for the year. You can make individual gifts of $15,000 to as many people as you would like, but if you give more than $15,000 to one individual within one year you need to report that gift. If you are married, you and your spouse can each gift up to the annual exclusion to any one recipient, so a couple can gift up to $30,000 to a single person.
The gift tax return allows the IRS to track the giving over the annual limit. The IRS tracks the lifetime giving to make sure an individual person does not exceed the current lifetime limit of $11.4 million. This total giving amount becomes an important factor in future estate tax calculations.
If you have any further questions about the gift tax, please contact us now.