Know the Gifting Limits for Year-End Planning
Today we are focusing on estate and gift tax planning, specifically, gifting limits. On October 26, 2020, the Internal Revenue Service announced that the annual gift exclusion amount for 2021 will remain the same as 2020 at $15,000. An individual may gift $15,000 annually to as many individuals as they desire with no federal gift tax consequences to the donor or recipient.
Gifts can be made in excess of the annual exclusion amount; however, you would need to use part of your lifetime gift/estate tax exemption for any amounts to individuals in excess of $15,000. The estate and gift tax exemption is set to increase to $11.7 million per individual for 2021.
Spouses May Double Gift Amount
If you are married, both spouses may provide gifts to the same individual up to $15,000, which will double the impact of the gift. For example, if a married couple has one child, it may be to their advantage to double their gift, up to $15,000 each, which provides their child with a gift of $30,000. Again, there are no federal gift tax consequences for this transaction which is why you should consult with a CPA when making decisions about gift tax planning.
When Does the Estate and Gift Tax Apply?
You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.” The tax applies whether the donor intends the transfer to be a gift or not and taxes may be due if your total lifetime gifts exceed your lifetime exclusion.
Who Pays the Estate and Gift Tax?
The giver of the gift is responsible for paying the gift tax on their tax return, other than in special situations where the recipient may have elected to pay the tax through an agreement with the donor.
Questions?
Should you have questions about estate and gift tax planning or any other topics, please contact us at any time.
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