Whether sending money in a card or gifting something to a friend, you may not think twice since you won’t be taxed. However, if you transfer a considerable amount of assets, you’ll need to consider gift taxes. Unfortunately, many are unfamiliar with the rules surrounding these taxes, leading to issues down the line. As such, connecting with Pennsylvania estate planning attorneys can help you understand these taxes and ways you may be able to circumvent them. Keep reading to discover the answers to some questions you may have regarding these matters.
What are gift taxes?
The gift tax is applied to monetary or property transfers given to others for nothing in return. This applies to transfers regardless of whether or not they are intended to be gifts. Additionally, if you make a sale for less than the total value of the asset, this could also be deemed a gift and, as such, may incur a tax. The gift tax is imposed on the gifter and not the recipient.
As of 2024, the annual gift tax limit is $18,000 for unmarried individuals and $36,000 for married couples. If you gift more than this amount, you must report this when filing your federal tax return using Form 709. It’s important to note that if you exceed this annual amount, such as gifting $20,000, you will only be taxed on the $2,000 that surpassed the limit. However, you will likely not be taxed on this amount, unless you exceed the lifetime limit.
Aside from the annual gift tax, there is also a lifetime limit. Essentially, this means that as of 2024, you can gift up to $13.61 million in total throughout your lifetime without incurring taxes on it. Married couples will each have this amount. However, once you exceed this amount, you must pay taxes.
Is there any way to avoid this tax?
If you want to avoid incurring gift taxes, there are several things you may be able to do. However, it’s imperative to understand that it’s in your best interest to work with an experienced attorney to discuss these options in further detail.
Generally, the easiest way to avoid paying the gift tax is to honor the annual and lifetime exemption limits. As such, you may want to spread your gift over a few years. However, in some instances, this may not be possible, so understanding your other options is critical. If you have a grandchild and want to pay for their education, you may be able to avoid these costs by paying the funds directly to the school rather than gifting the money to the child to use as they see fit. This is also applicable for medical expenses, so long as they are paid directly to the institution rather than the patient.
When creating your will or setting up trust funds, you should connect with an experienced attorney to discuss your options to ensure you have the best opportunity to save money and ensure your beneficiaries receive the funds you intend to leave for them.
At Friedman Schuman, we know that these matters can be complex if you aren’t familiar with them. That’s why our team is dedicated to doing everything we can to help you understand what you should expect when giving gifts to others. Contact our firm today with any questions regarding these matters so we can assist you.