Gift Tax -- March 5, 2024

Gift tax made simple.

I finally figured out the annual gift maximum.

This is simply amazing.

In 2024, the maximum is $18,000 per-person,

As a couple, May and I can give up to $36,000 each year to as many individual people as we want, and we don’t have to file that information with the IRS.

If we gift $40,000 to Sophia, then we need to file with the IRS but the $2,000 is only taxed after we die and only if it exceeds the lifetime limit, which is $13.61 million per person.

On top of that, certain gifts are completely exempt.

Link here.

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The Gift Tax

I've done a lot of surfing on the web looking for information regarding the "gift tax."

I was absolutely amazed that I couldn't find any discussion regarding the "gift tax." 

But this is what it seems to be.

In a sense there are two parts to the gift tax, but it starts with the "death tax."

The "death tax": after one dies, the estate, up to some amount, is tax free to the heirs of the estate. That seems easy and straightforward. I'm sure there's more to it than that, but for purposes of this discussion, that's all one needs to know. 

The problem is that rich folks could game the system and give their money away while they were alive, to make sure their estate was less than the threshold / the "exclusion." 

Currently, the exclusion is $13.61 million.

To prevent folks from gaming the system, the federal government set a limit on how much money could be given away as a gift on an annual basis, to dovetail with the annual tax.

If one gives away, each year, less than the annual maximum, the taxpayer does not have to inform the government of any tax and no taxes are due. 

The gift tax is one donor, one recipient. The single donor can be a single individual or a married couple. The current annual limit is $18,000. It is much like a "standard deduction" which minimizes the need to itemize one's gift over the year for most folks.

A single person can give any other person, as of 2024, $18,000 without filing any form and without paying any taxes. Gift taxes are paid by the donor, not the recipient. Money given as a gift is not considered income. A couple can give any other person, as of 2024, $36,000 without filing any form or paying any taxes on that gift.

The government figures that in the course of normal human behavior folks will give money to others in the course of the tax year. Obviously there has to be some sanity with regard to how much can be given away without being taxed; and, the figure had to be high enough to preclude folks from having to keep detailed records on giving money to others.

The amount has to be reasonable. And in this case, some would argue it's quite generous. Others might argue it's not generous enough. Doesn't matter. In 2024, the amount is $18,000 per individual, $36,000 for a married couple.

After that, it gets tricky. but this is what confuses folks. It appears that the annual limit simply applies to whether one has to file the gift tax information with the IRS or not. It has nothing to do with actually paying the tax. 

This took awhile to figure out.

There are two IRS forms with regard to gift taxes. There is Form 706 and Form 709.

Form 706 is filed by the executor of the deceased, and, I assume, is filed only once, on the death of the taxpayer.

Form 709 is filed by the donor while alive for gifts exceeding the annual limit even if no tax is required due to the lifetime exemption. Only one Form 709 is filed each year.

Gifting for a "529" has a special provision allowing one to jump-start a 529 contribution:

If one knows one's estate will be well below the $13 million exemption, it seems one could easily give more than the annual limit every year. But I don't know how that works, and the Form 709 is not helpful.