Will I Have to Pay Federal Gift Taxes If I Give Money Away Before I Die?
Not everyone waits until death to financially provide for their loved ones. Many individuals are happy to give their money away while they are still alive. But can this lead to tax complications? More specifically, will you have to pay federal gift tax on any money you give away before your death?
How Federal Gift Taxes Work
The gift tax is a levy imposed by the federal government on the transfer of property from one person to another where the giver receives nothing (or less than full value) in return. This includes not just gifts of money but also property for below-market value.
You can look at the gift tax as the flip side of the estate tax. The federal estate tax is a levy imposed on the transfer of property after a person dies, while the gift tax applies to transfers made before death. Both taxes include generous exemptions, however, so in practice very few individuals or estates will actually end up owing any tax.
The gift tax has both annual and lifetime exemptions. The annual exemption is the amount of property you can gift to a specific person each year without incurring any gift tax liability. As of April 2024, the annual exclusion is $18,000. Keep in mind, this is a per-person exclusion. Let’s say that you have five adult children. You could gift each child $18,000 per year for the rest of your life and it would be covered under the annual exclusion. And if you are married, you and your spouse can give away double the amount of property each year, or $36,000 per recipient. If you child is married and you like (and trust) your in-law, you can give a combined $72,000.
Even if you make gifts that exceed the annual exclusion, however, you will still likely be covered by the lifetime exemption. Federal law actually combines the gift and estate exemption. In 2024 this exemption is $13.61 million per person (or $27.22 million for a married couple). You can apply any gifts that exceed the annual exemption to this lifetime exemption. For example, if you gave your son $118,000, the IRS would reduce your lifetime credit amount by $100,000 leaving you with $13.51 million of credit remaining. Only when your credit runs out, is there a tax to the gift giver.
Also note there are some gifts that are never subject to gift tax, and therefore do not count against either the annual or lifetime exemptions. Excluded gifts include those made to charities, contributions to political candidates, or gifts made to pay medical or educational expenses. In addition, you can make an unlimited gifts to your spouse or any dependent children you have.
If, however, you somehow exceed all of the exclusions and exemptions and do owe gift tax, the actual rate is between 18 and 40 percent, depending on the amount of the taxable gift. On the plus side, there is no statewide gift tax in Washington. You would only have to pay the federal gift tax.
Contact a Spokane Valley Gift Tax Lawyer Today
Federal gift tax laws and regulations are in a constant state of flux. So it is important to work with an experienced Spokane Valley gift tax attorney who can advise you on the current law and your potential liability. Contact Moulton Law Offices, P.S., today to schedule a free consultation. We serve clients throughout the Spokane Valley, Kennewick, and Yakima area.
Source:
irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
