When you want to give gifts to your loved ones, there are some federal laws that apply. The U.S. federal gift tax is paid on gifts that people give to others. The beneficiary does not pay the tax, the donor does, which is something that has to be considered carefully.
The good news about this tax is that there are exemptions and ways to avoid paying more than you expect. In some cases, exemptions and exclusions can help you avoid paying any tax at all.
The Internal Revenue Service (IRS) defines gifts as anything you give without receiving full consideration in return. Essentially, if you are not receiving something for equal fair market value or cash, you’re giving a gift. Of course, not all gifts are taxable. U.S. citizens are allowed to gift up to $152,000 in cash or property to spouses who aren’t citizens. For people who are married to a citizen, the unlimited marital deduction applies. You can gift as much as you want to a spouse with no taxation.
You’re also allowed to give funds unlimitedly if they will be used for health care or education. The only catch is that the institutions have to be paid directly, not through a third party.
Annually, you can give away a certain amount of money without facing a tax. As of 2019, you won’t be taxed on gifts as long as the total doesn’t exceed $15,000 per person. Each donor receives this exemption, so if you’re married, you’ll be able to give up to $30,000 yearly to individuals.
Gifts can be a great way to reduce your estate’s value if it’s too high and could be taxed. Think carefully, and you can benefit from lower, or no, taxes on your property.