Giving gifts is a wonderful way to express your love for others, help out friends or family, and feel great yourself. But many Americans don't realize that gifting assets or cash in larger sums can incur a tax.
Known as the gift tax, this tax is levied on the giver and may come into play any time you (or your spouse if filing jointly) gives an amount greater than $15,000 (in 2018) to a single individual. But there are a number of ways to gift more than this exclusion amount and still avoid the gift tax.
To help you and your tax preparer find the best route for your situation, here are a few of these methods.
Give From Each Spouse. The easiest method to avoid the gift tax is for you and your spouse to gift up to the individual exclusion of $15,000. This means you can collectively give a person up to $30,000 without tax. In addition, if you give to a married couple, designate up to $15,000 for each spouse as well. This would give the family collectively up to $60,000 tax free.
Pay Their Tuition. Payments made directly to an educational institution for tuition and fees are excluded from this annual amount. So you can pay for college each year and still give the student up to the annual exclusion without filing a gift tax return.
Pay Medical Expenses. Like college costs, medical costs are exempted from gift tax calculations. So you can pay a person's hospital, doctor, or other provider bills (paid directly to the medical provider) and also give up to the exclusion amount to your loved one without taxes.
Apply the Lifetime Limit. Aside from the $15,000 annual gift tax exclusion, there is also a lifetime tax credit for gift transfers. This lifetime limit is $11,180,000 as of 2018, although this exclusion may change in future tax years. If your gift goes over the annual exclusion, you can also apply it to this unified credit (called the Applicable Credit Amount) for your lifetime by filing the appropriate gift tax return. If you need to file for this credit, be sure to work with a qualified tax prepaper.
These and other methods of excluding gifts from the gift tax make it easy to be generous to your friends, family, and other worthy recipients. For more information about how to avoid the gift tax in your particular circumstances, talk to a qualified tax preparation company today.
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