Since last month, the annual tax gift amount you can exclude has increased to $17,000 for this upcoming tax season. This means that $17,000 is the total you can gift to anyone throughout the year without facing any tax implications. The exclusion amount used to be $10,000, and that was the amount for several years. However, the annual gift tax exclusion has increased steadily since last year.
Overview
Annual exclusion gifts allow taxpayers to move money to friends or family members out of their taxable estate, which ultimately allows the taxpayer to be free of any gift tax or estate penalties. However, If a gift is made that exceeds the $17,000 ceiling, the taxpayer will most likely have to use up their lifetime exemption total to pay the overage.
As of 2023, the federal lifetime exemption amount is $12,920,000. When you adjust for inflation, that exemption amount decreases to $5,000,000 in 2026.
Take Advantage
All of the upcoming changes for this tax season have people planning for the future and thinking of the best ways to gift their wealth to the next generation without facing any tax implications. Here are some tips to follow for tax-free gifting.
The $17,000 amount applies to every person, which means if a taxpayer has ten family members they want to gift that amount to, they would gift a total of $170,000 without facing any tax implications. If this taxpayer is married, this amount can double as their spouse can gift the same amount to the same people free of penalties.
The old-fashioned way of writing checks is more beneficial in this situation when compared to electronic payment apps such as Venmo or PayPal. The IRS is cracking down on electronic payments made on these apps, specifically any payment over $500. In order to avoid questions from the IRS about the transaction being taxable, just write a check.
Irrevocable Trusts
If the gifting taxpayer does not want the beneficiary to receive the gift at a young age or if the beneficiary is inexperienced in handling finances, the taxpayer is allowed to give the gift through an irrevocable trust. An Irrevocable trust ultimately allows the taxpayer to control when the gift is distributed.
Another option for the taxpayer is keeping the money in a trust and letting the beneficiary, or trustee dictate when the cash is distributed. If the taxpayer is making yearly exclusion gifts, this is a good option as the sum of annual gifts will quickly add up.
Wrap Up
The total exclusion gift amount being raised is certainly good news for all taxpayers wanting to spread their wealth, without Uncle Sam getting his hand in the purse. Knowing the different ways to avoid paying any penalties or owing any money. If you have any more questions about gifting to beneficiaries, give us a call at 516-541-6549 or visit dsj.us for more information.