I receive this question a couple times a month about the gift tax.
It’s a variation of: “How much can I give to (person) without paying tax?” Or “If Gram gives me $20k do I have to pay tax on that?”
The answer is almost always: NO! You will not pay tax on your gift, neither will you ,or Gram, pay tax on her gift to you.”
The ONLY time this gift could be an issue is for the Very, very wealthy, those who’ve given more than $11 million over the course of their lives.
I’ve worked with a lot of affluent people but have never worked with someone who has given that much money. So, noone I’ve ever worked with is paying a tax on that $20k gift.
Gifting falls into 2 categories:
1. Annual exclusion amount
2. Lifetime exemption
Annual exclusion is that amount you can give to another human being without paying tax or filing a gift tax return, IRS Form 709.
In 2018 you can give me, for instance, $15k and not pay tax or file a 709. You can also give my wife $15k and pay no tax or file a 709. You can give $15k to the entire town you live in without paying tax or filing a 709.
As long as no one person receives over $15k from you, your gift is tax free and not reported.
Annual exclusions are different. Until you give over $11 million over your lifetime, NOT INCLUDING YOUR ANNUAL EXCLUSIONS, you still don’t pay tax on your gifts. You do have to report them though on that 709 form though.
Again, it’s all of 1 page. Big deal.
Gift Tax Return – Form 709
The 709 form is really just a way for the IRS to track how much you’ve given over your lifetime. That way they can tax you accordingly once you break that $11 million threshold. Remember, that’s per person too!
So, your gifts to people are most likely NOT going to be taxed.
The amount you receive as a gift, is NOT taxed to you either.
If you give above the annual exclusion, please do fill out the 709, just to make sure the IRS has been notified of your gifts.
Lastly, I want to offer a suggestion too. Giving while you are ALIVE is one of the most satisfying things you can do. Don’t wait until you’re dead for your beneficiaries to receive your wealth.
They could use it NOW and you can witness them using it too. It’s a truly wonderful blessing to behold, moreso for the donor than the recipient.
I was listening to a Seth Godin podcast the other day, can’t say I’m a huge fan of his podcasts by the way so I unsubscribed Anyway, he was holding out this lady in NYC who left an $8 million dollar gift to charity when she died.
She was just a legal secretary and thus it was amazing how much wealth she amassed and just left it . Godin was making her seem like another coming of Mother Theresa. But I disagree.
Give Now – Don’t Wait!
It takes more courage to give when you are alive than at your death bed. Why? Because once you make that gift you can never reclaim it and that means you have faith you won’t NEED to reclaim that gift.
Secondly people could use the help TODAY, not 15 years from now.
Over the course of this lady’s life, how many people could she have helped, and witnessed to it too, instead of just squirreling it away until she died?
Yes, it’s nice she gave that big of pot of money. But once she broke the $5 million balance didn’t she feel at that point she’d probably be okay financially to survive?
I mean she obviously wasn’t living like Prince Charles or else she would never have accumulated what she did.
Look, I’m not trying to make a value judgement on her or anyone else, but if you desire to give, don’t wait until you die. Do it now!
You, yes YOU!, will be better off for it.