Why Should I Give My Money Away?

Everyone likes money, right? Giving money to family or friends can also be a smart tax planning move.

For wealthier Americans, giving away your money now can help you reduce or even avoid estate taxes when you die.

Annual Gift Tax Exclusion

Any gift may be subject to the federal gift tax, but you can give up to $16,000 per person during the year without having to file a gift tax return. If you are married, your spouse can also give $16,000 to the same people, upping the annual tax-free gift up to $32,000 per person.

Whatever you give away this year, up to the $16,000-per-recipient limit, will not be counted for estate tax purposes when you die.

Estate Tax Benefits

If the current value of your estate is above the federal estate tax exclusion amount ($12.06 million for 2022), giving away money now could drop the value below the exclusion amount. The result would be no federal estate tax when you pass away.

There could also be state estate taxes to worry about. A dozen states and the District of Columbia have their own estate tax. Each currently has an exclusion amount that is far below the current federal standard (like just $1 million in Massachusetts and Oregon).

Gifting Amounts Over the Annual Limit

What happens if you are feeling extra generous and want to give more than $16,000 (or $32,000 per couple) to your fantastic 30-year-old niece this year?

You will be required to file a gift tax return (IRS Form 709), and the amount over $16,000 is potentially a taxable gift.

However, you can still avoid gift and estate taxes, if the total amount of taxable gifts so far over your lifetime is less than $12.06 million.

Therefore, if you are thinking of dropping a very large amount of cash in the hands of your niece (or whomever), it does not necessarily mean you will have to pay taxes on the gift.

For strategies about gift giving, speak with an experienced estate planning attorney.

If you or a loved one needs assistance with elder law or estate planning issues, do not hesitate to contact The Stegall Law Firm. We are here to help.