Don’t Be Afraid Of The Gift Tax Return

“If I Give Someone More Than $15,000, Will I Have To Pay Gift Taxes?”

 

There are many reasons people give gifts of money.  For example, sometimes parents want to help out their kids, or they might want to accelerate the inheritance process rather than making their children wait until they pass away.

However, people often worry about limiting their gift to the “gift tax exclusion” amount.  They focus on that “limit.”  The truth is, for about 99.9% of all Americans, the exclusion amount should not be a concern.  How can that be?  Don’t you have to file a Gift Tax Return if you exceed the exclusion amount, and pay taxes?

Unfortunately, many people have the wrong impression, and it’s easy to see why.  For example, we found apparently authoritative statements on the Internet such as this one:

“The maximum gift that can be gifted to another person without a gift tax to the giver is $15,000.”

The federal gift tax exclusion amount is currently $15,000 – but that is not the maximum amount you can “gift tax free.”  The gift tax exclusion is the maximum amount you can gift each year to any number of persons without filing a Gift Tax Return, and without having such gifts counted toward your lifetime exemption from federal gift and estate tax.

However, the federal lifetime estate and gift tax exemption is now $11,180,000 for an individual, and twice that for married couples.  In New York, there is no gift tax (although gifts made within 3 years of death will be added to the estate for NYS estate tax purposes).  The NYS estate tax exemption amount is $5,250,000 in 2018, and it is scheduled to equal the federal exemption amount in 2019.

So, if you make a gift of more than $15,000 in 2018, you will not owe any tax unless you have already made reportable gifts in excess of your federal lifetime exemption.  The only “penalty” for making a gift in excess of $15,000 is the obligation to file a Federal Gift Tax Return, which allows the Internal Revenue Service to keep track of your lifetime gifting.

With federal lifetime exemption amounts of $11,180,000 for individuals and $22,360,000 for married couples, there are very, very few people in New York who need to worry about paying a gift tax.  (If you live in another state, you should check on whether your state imposes a gift tax.)

So who actually pays estate or gift taxes?  Here’s an astounding quote from an article on the Tax Policy Center website:

“The House and Senate versions of the Tax Cuts and Jobs Act would reduce the number of [federal] taxable estates by about two-thirds in 2018, and save the heirs of a few thousand wealthy decedents almost $7 billion dollars, according to new estimates by the Tax Policy Center.  Next year, only about 1,700 estates would owe federal estate tax under either bill.” 

Look around you.  Probably nobody you know will pay federal estate and gift tax.  The magnitude of the federal lifetime exemption from estate and gift tax, and the likelihood – or un-likelihood – that you will ever pay a tax, is worth contemplating.  You could give away $100,000 every year for 100 years, and you would still be a long way from exceeding the exemption amount.

So, if you want to make a gift that exceeds $15,000, go ahead and do it.  Just remember to have your accountant prepare a Gift Tax Return for you.