Most of the time when you give a gift to someone for a standard occasion like a birthday, holiday, or other celebration, there’s no need to consider the tax implications. However, if you ever decide to give someone a really expensive gift, make sure you’re aware of the “Gift Tax” and how it may affect your financial situation.
What Is the Gift Tax?
The gift tax is just what it sounds like. It is tax assessed on the value of a gift given to another person when you do not receive compensation that amounts to the fair market value of the gift given.
This means that, even if you do get some money or other compensation in return for your gift, you may still need to navigate the gift tax waters.
When Do I Need to Worry About the Gift Tax?
The gift tax generally doesn’t come into play for regular gifts. That’s because there’s a per-person exclusion amount of $15,000 (as of 2018). You can give money, property, or other gifts up to $15,000 to another individual without being taxed or needing to file a gift tax return.
When you’re making large gifts, though, make sure you know what you’re in for! Typically, you won’t need to worry about paying gift tax because each person has (as of 2018) up to a $11.2 million lifetime exclusion before gift tax kicks in.
If you give someone a gift in excess of the $15,000 annual exclusion though, you do need to file a gift tax return so that the value of your gift can be counted towards your lifetime exclusion. However, you won’t have to pay any gift tax until you hit the lifetime exclusion mark.
If you’re exceptionally wealthy and generous and you give over $11.2 million in gifts over your lifetime, then the actual tax part of the gift tax will apply. Gift tax rates range from 18% to 40% of the value of the gift(s).
Need More Information?
If you still have questions about the gift tax and how to keep accurate records, make large gifts, or plan for future gifts, call the tax experts at Taxation Solutions, Inc. Our knowledgeable team is here to help clients in Indianapolis navigate the gift tax requirements and make informed decisions about how and when to make sizable gifts. Call us today to set up an appointment!