So I’m trying to understand the IRS gift-tax rules: The limit you can give someone, for 2022, is a total of $16,000; anything beyond that is subject to taxation.
Does this mean that if I give someone less than $16,000, I don’t even need to report it on paperwork, or does it mean I do still need to report but just don’t owe any taxes on it?
And if I had $20,000 to gift someone, but split it up into two years (say, $15,000 this year and $5,000 the next,) it then is all non-taxable?
Form 709 is what you would fill out for gifts that are subject to the gift tax.
The part relevant to your question is here:
Who does not need to file.
If you meet all of the following requirements, you are not required to file Form 709.
- You made no gifts during the year to your spouse.
- You did not give more than $15,000 to any one donee.
- All the gifts you made were of present interests.
So no, if your gift to someone is below the annual exclusion limit, you don’t need to report it.
Yes. That’s what is meant by the “annual” exclusion limit. This page includes examples:
How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000. For 2018, 2019, 2020 and 2021, the annual exclusion is $15,000. For 2022, the annual exclusion is $16,000.
Also from earlier Form 709 link:
Annual Exclusion
The first $15,000 of gifts of present interest to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts. For a gift in trust, each beneficiary of the trust is treated as a separate donee for purposes of the annual exclusion.
All of the gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interest and they total $15,000 or less.
There are other exclusions as well, e.g. paying large amounts of money for someone else’s education or health care.
Nitpick, it’s subject to potential taxation in the future.
There is a common misconception that you must pay gift taxes if you give away more than the annual exclusion to a single recipient. Every taxpayer has a lifetime gift and estate tax exemption amount. In 2022, the lifetime exemption increased from $11.7 million to $12.06 million. Unless the tax laws change, the lifetime exemption will drop to approximately $6.2 million at the end of 2025. Gifts above the annual exclusion described above count against your lifetime exemption and should be reported on a Form 709 gift tax return. Generally, you will only be liable to pay federal gift taxes if your total lifetime gifts exceed the exemption. The only state that currently imposes its own gift tax is Connecticut.
If you’re never going to reach the limit, you could give $200,000 this year to someone, report it, but never have to pay any taxes.
That’s what I came to say. The gift tax return is just a reporting mechanism. You do not have to pay extra taxes when you file that form.
Boy, one learns something most every visit to the Board. I have heard about the gift-tax annual limit of (now) $16,000 being non-taxable but, without ever having read Form 709 etc., I had always thought that that meant the donee would not have to pay tax on amounts under the annual limit. Now I find it’s on the donor, but that’s waived if the donor’s lifetime gift limit is under several million dollars. Please clarify for me. Do the donees/recipients have to pay tax on gifted amounts under the annual limit? Save me reading the 28 pages of Form 709.
I’m not a tax lawyer and I’m not giving you tax or legal advice. My understanding is that recipients of gifts don’t have to declare them as they are not income. My grandmother used to send me $10,000 a year for a couple of years before she died (the limit at that time). I never declared that as income.
ETA: This is from the IRS website:
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
**Gifts that are not more than the annual exclusion for the calendar year.** Tuition or medical expenses you pay for someone (the educational and medical exclusions). Gifts to your spouse. Gifts to a political organization for its use.In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.
The whole point of the gift tax is to prevent an obvious way for semi-rich people to avoid probate estate taxes by giving most of their money to their extended family (or their favorite charity) before they die, rather than paying the estate tax on that same money after they die and having less left over for kids, grandkids, cat shelters, etc.
I say “semi-rich” because prior to about the 1986 Reagan tax changes, the lifetime maximum exclusion was much lower. As in every doctor, lawyer, airline pilot, and upper-mid-level manager who didn’t spend themselves into the poorhouse had to worry about estate taxes and how to avoid them. Giving your kids their inheritance in stages in your later years was an obvious solution. So the IRS / Congress invented the gift tax to close that loophole.
As explained upthread, assuming the current estate/gift tax exclusion amounts stay as high as they are, only the top 1.5%ers need to worry about this stuff, not the top 15%ers like before.
Also not a tax expert or lawyer so this is not advice, but my understanding is that the annual exclusion is per individual donor to individual donee. That means a married couple with joint assets could give twice the annual exclusion to any one person without triggering Form 709 requirements. So my wife and I could give our daughter and soon-to-be son-in-law 4 times the annual exclusion, or $64,000/yr, without paperwork. (To be clear, we do not have that kind of money to give at the moment, but hypothetically.)
Yes. It is unlikely that any of us will actually be paying Estate or Gift taxes