The Gift Tax Explained – What You Need to Know
Video Summary
The traditional concept of a “gift tax” is often misunderstood. In reality, it only applies to individuals with a net worth of over $10 million. For those with a lower net worth, there is no need to worry about this tax. One key takeaway is that you can gift up to $15,000 per person, per year, without having to report it to the IRS or the recipient. However, if you gift more than this amount to an individual, you will need to fill out a tax form (Form 709) to report the excess amount.
This limitation is closely tied to the estate tax, which is the tax on an individual’s assets when they pass away. The unified tax credit is the same as the lifetime exclusion amount for gifting. This means that the more you gift, the more you reduce your estate tax exemption. Currently, the exemption amount is $11.7 million, but this will be reduced if you gift over that amount. With proper estate planning, individuals can avoid this tax and ensure that their loved ones inherit tax-free.
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