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5 Things to Know About the Gift Tax


You've put in the effort and achieved financial stability, and now you want to share your success with your loved ones by giving them generous gifts. However, you might be concerned about the potential penalties and complexities involved in giving large amounts of money to others. Here are some common misunderstandings and important factors to think about before sharing your wealth. Related: 529 Tax Benefits


1. Who Pays the Gift Tax?

Despite what many people think, the person receiving a gift isn't usually the one who has to pay the gift tax. Instead, it's typically the person who gives the gift who is subject to the tax. This only happens, though, if the value of the gift is more than the current annual gift exclusion. The person getting the gift doesn't have to worry about paying the tax — unless the person giving the gift doesn't pay it or report it properly.


2. Annual Gift Exclusion: $18,000 Per Person

In 2024, you're allowed to give someone up to $18,000 per year without having to report it to the IRS. If you're married, you and your spouse can give up to $36,000 to the same person without worrying about gift taxes. But if you give more than this amount, you'll have to fill out IRS Form 709 to report the extra gifts you've given to that person during the year.


3. Types of Gifts and Documentation

Gifts aren't just about giving money; they can also include real estate, stocks, cars, art, or collectibles. If the value of a non-cash gift goes over $18,000, you need to give the IRS proof of its fair market value. This might mean getting a professional appraisal. Some gifts, like donations to political groups or paying medical or tuition bills, might not need to be reported for gift-tax purposes.


4. Lifetime Gift Tax Exclusion: $13.61 Million

For most people, gift taxes aren't a big concern because of the personal lifetime gift tax exclusion, which is currently set at $13.61 million. This means you can give more than $18,000 to one person without paying gift taxes, as long as these gifts stay within your lifetime exclusion limit. However, it's worth remembering that this exclusion also counts toward your estate tax, which could have an impact on your overall estate planning.


5. Estate Tax Implications and Future Considerations

The current exclusion limit of $13.61 million applies to both gift and estate taxes. This limit is set until 2025, but it's possible that future laws or administrations could change it. It's also important to consider state-specific rules, since some states have lower limits for lifetime exclusions, which could affect your estate-planning decisions.


Virginia529 does not provide tax, legal or investment advice. Consult your tax, legal or investment advisor for more information about your specific tax situation and tax consequences.

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