Gift tax exclusion- How much can I give and who pays the taxes? Annual gifts vs. lifetime gifts

We are naturally generous to our family and children, often supporting family with money each year. This is typically in the form of a gift, or check written to various family members. Commonly this gift amount matches the annual Federal gift tax exclusion amount. In 2021, this amount is $15,000 per donor per recipient. Meaning a husband and wife with one child may each write a check in the max amount each year to this child. Staying within the annual exclusion does not trigger a gift tax for either party. But here’s the kicker- each individual has a lifetime gifting exclusion amount. If you want to gift over the annual exclusion amount, you may do so, without triggering gift taxes as long as you stay within the lifetime amount. You will need to file a gift tax return, however, but for tracking purposes of your lifetime exclusion amount, not to force a gift tax. Each individual has a lifetime gift amount of $11.7 Million dollars and $23.4 Million for a married couple. The majority of individuals will fall within this cap. This means you may gift above the annual exclusion amount without any taxes owed, as long as within the $11.7 Million dollar per individual limit. If you work with a CPA, then s/he will need to prepare an extra form, which should be the only expense related to this gift.

Gifts not subject to any taxes, either annual or lifetime, if you pay for medical or educational expenses directly to the institution. This is often overlooked and an easy fix moving forward.

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The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation. As required by the IRS, you are advised that any discussion of tax issues in this material is not intended or written to be used, and cannot be used, (a) to avoid penalties imposed under the Internal Revenue Code or (b) to promote, market or recommend to another party any transaction or matter addressed herein.