5 gift tax exemptions you need to know
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Giving away tens of thousands of dollars typically means you have to pay a federal gift tax, according to the IRS. However, some may want to avoid this tax because it can be subjected to an 18 percent to 40 percent tax rate.
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WHAT IS A GIFT TAX?
Luckily, there are a few exemptions in place to protect generous gifters. Here are five ways you can ensure you won’t be hurt by an egregious gift tax.
1. Use the gift tax exclusion
The current gift tax exclusion is $15,000 for a single year, however, the amount is raised every year because it is adjusted for inflation. Despite the current exclusion, the tax law allows you to issue gifts on a per-recipient basis, so you can write as many $15,000 checks as you need as long as they go to different people. If you’re married, the combined annual gift exclusion goes up to $30,000 per recipient.
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A unified lifetime exemption exists for generous gifters who give continuously. Under this exemption, a person can give away $11.58 million in their lifetime, according to the 2020 guidelines of the IRS. However, be wary that going this route reduces the unified credit you can give away at the time of your death.
2. Use a marital deduction
Married couples can also transfer money and property between each other without an imposed limit if they use a marital deduction. However, an exception exists for spouses who are not U.S. citizens. Currently, the martial deduction is $157,000 in gifts. Going over this amount will subject a couple to the gift tax.
HOLIDAY GIFT TREND: PAY MY DEBT 3. Use funds for education
If you have a child or relative that needs money for college, you can qualify for a gift tax exclusion if you contribute funds for their tuition. The payment needs to be made directly to the university the student is enrolled in to not void out eligibility. Purchasing physical items like school supplies, room and board and so on will not count for a gift tax exclusion.
GET FOX BUSINESS ON THE GO BY CLICKING HERE 4. Use funds to cover health care expenses
Just like with education, a gift tax exclusion can be applied if you are donating funds for health care and insurance costs. Money must be submitted directly to the health care facility or insurance company that is providing services or coverage. Handing money directly to the recipient will void out the gift tax exclusion.
CLICK HERE TO READ MORE ON FOX BUSINESS 5. Use funds for charity
(AP Photo/Mark Lennihan)
Philanthropic individuals can donate funds to a charity and receive a gift tax exemption so long as the money is given to tax-exempt organizations. There is no limit you can give a charity under the Internal Revenue Code’s Section 501(c)(3).
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