It seems like Uncle Sam gets a cut of everything these days, so you might be concerned that when you give someone something it may be taxed. The good news is that you can give a lot of gifts without worrying about taxes thanks to an annual gift limit that is adjusted for inflation. In 2023, the annual gift tax exclusion is $17,000 per recipient, so you can give anyone up to that amount each year without worry. Anything you give above that will need to be reported on a tax return (Form 709).
Gift taxes are imposed by the federal government and only apply to gifts that are worth more than the annual gift tax exclusion (which is currently $17,000 for 2023) in any given year. A gift tax is a type of transfer tax that is applied when an individual gives money or property to another individual without receiving any sort of equal or greater value in exchange. The person who makes the gift is responsible for paying any tax that might be due, so this is a great reason to talk with a professional before making a sizeable gift.
For example, let’s say you want to give your children some of your estate so that they can benefit from it early in life. However, you don’t think they will need all of it when they are older. In this case, you might want to use a trust to hold onto some of the property so that it can be accessed later by your children.
The good news is that the annual gift tax exclusion is higher than it has been in years past. In fact, it is expected to increase again next year to allow a person to give up to $24,000 to each child in 2023 without incurring a gift tax penalty. Married couples can combine their annual exclusion amounts to give up to $48,000 each to their children in a single year.
However, keep in mind that the lifetime gift tax exemption is set to decrease at the end of 2025. That means that it might be wise to consider using annual gifting to lower your estate and potentially avoid or reduce future transfer taxes.
If you have any questions regarding the gift limit 2023 or any other aspect of gift and estate planning, you should contact a legal professional with expertise in these areas. They can provide you with information on the rules and regulations of these areas and help you create an estate plan that fits your unique circumstances.
Originally published March 1, 2019. Updated April 25, 2023.
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