How Does the Gift Tax Work?

You may be generous with the assets that you have collected over the years. That is, you may consistently gift your loved ones with your assets while you are still around to offer them your financial support. However, if the gifts you are issuing are of considerable value, then you may want to take into account the gift tax. Follow along to find out how the gift tax might work in correlation with your estate plan and how one of the proficient Butler County estate planning & probate attorneys at Heritage Elder Law & Estate Planning, LLC can help you effectively dodge it.

In referring to an estate plan, how does the gift tax work?

First things first, the gift tax refers to the federal tax that is applied to a giver’s transfers of money and other assets to a receiver. With this, a receiver may transfer something of a lesser value or, more likely, give nothing in return.

Of note, an individual may gift away their property to reduce the value of their overall estate. This may be in an attempt to reduce or entirely avoid the estate tax that may come into effect at the time of their passing. However, you must understand that you cannot simply gift away major portions of your overall estate without consequence. Rather, you may be obligated to report these gifts by filing a gift tax return with the Internal Revenue Service (IRS). With this, federal gift tax rates may range anywhere between 18 percent to 40 percent of the amount you gift away.

How can I avoid the gift tax?

Importantly, there are two methods in which you may legally avoid the gift tax: the annual gift tax exclusion and the lifetime exclusion.

For one, the annual gift tax exclusion refers to the amount that you may gift your loved ones per year without having to report it to the IRS. As of 2024, the maximum amount you may gift is $18,000 per year before being subject to tax. And if you are married, you and your spouse may gift up to $18,000 each for a total of $36,000 per year. Also worth mentioning, gifts exchanged between you and your spouse may be unlimited.

Then, the lifetime exclusion refers to the amount that you may gift your loved ones throughout your lifetime without having to report it to the IRS. As of 2024, the maximum amount you may gift is $13.61 million for your lifetime. Similarly, if you are married, you and your spouse may gift double this total amount.

Without a doubt, the first step that you should take is to employ one of the talented Butler County estate planning attorneys. So please reach out to us at Heritage Elder Law & Estate Planning, LLC immediately.