Gift Tax: What Is It?

Many people look forward to both giving and receiving gifts. However, many fail to consider the potential tax implications associated with larger gifts. In the United States we have a federal tax known as a “gift tax.” We have everything you need to know on the topic, to help settle any confusion. 

What is Gift Tax?

Gift tax is a tax imposed on the transfer of property or assets from one person to another without receiving anything in return or with inadequate compensation. Gifts include cash, real estate, and other forms of property.  The IRS considers gifts as a means to prevent individuals from avoiding estate taxes by simply gifting their assets before passing away.

Gift Tax Limits 

The IRS limits how much you can transfer to someone as a gift. Any amount over this threshold must be reported and applied toward a lifetime gift tax exemption. Once you exceed this limit, the gift tax becomes payable. The gift tax can be imposed even if you never intended the transfer to be a gift.

Gift Tax Strategies 

  • Gift in Trust
  • Gift Splitting Through Marriage 
  • Break Up Gift Between Years 
  • Gifting Appreciated Assets 

Gift tax is an important factor to keep in mind when giving significant gifts to your family, friends, or others. To minimize your gift tax liability and make the most of your estate planning, it’s essential to comprehend the annual exclusion, exemptions, and lifetime exemption. It is highly advised to seek assistance from a qualified tax professional or financial advisor who can offer personalized guidance based on your individual situation and help you navigate the intricacies of gift tax laws. Please note that tax laws can be complex and subject to change.

 If you have questions, contact Paragon today!