Gift tax might seem arbitrary and just plain annoying, but many people fail to realize how gift tax actually works. For this reason, we have gathered together the basic information regarding how gift tax works, and how most people can avoid paying it for the rest of their lives.
The basic information
The basic idea of gift tax is to be able to impose a tax on giving cash, bonds, or anything similar to a certain person without requiring anything in return.
The initial idea of the gift tax was to stop the avoidance of estate tax, which was happening prior to the Great Depression, and it has worked great.
While the basic premise of the gift tax might seem very simple, many people still misunderstand how it works, and who should be concerned about paying it.
Why you will never pay gift tax
Whether you are planning to gift someone significant amounts of money or someone is going to gift you large sums of money, you will most likely never face a situation where you have to pay gift tax if you aren’t a multimillionaire.
Basically, if the total amount gifted per year is under $14,000, there is no need to report this information to the IRS. And this rule applies to one person only – a married couple can give $28,000 per year before reporting anything, and if the recipients happen to be a married couple, then this amount rises up to $56,000!
Now, when this sum rises above $14,000 per year, many people start to panic and think that the IRS will slam a ridiculously high tax on any gift after that. While it is true that all gifts after the $14,000 limit has been exceeded will have to be reported, it doesn’t mean that the gifter or the gift recipient have to pay any taxes.
The total amount that can be donated during one’s lifetime after the $14,000 is exceeded is $5,450,000, and this limit is doubled for a married couple. This means that unless you are planning to give away huge sums of money, you will never have to fear about gift tax ever again.
While many people frown upon the gift tax, it is crucial to realize that mostly ultra wealthy people have to actually worry about it at all.
While this information is available publicly, most Americans don’t have any clue about how the gift tax works. Overall, the gift tax is great at cutting down tax avoidance between rich families and wealthy people, while it won’t bother most Americans at all.
Were you surprised by this information? You should share it with your friends! Most people will be surprised to hear that you don’t have to have a super intelligent plan to avoid paying gift tax – and who wouldn’t love to hear this kind of news!
Helpful article? Leave us a quick comment below.
And please give this article a rating and/or share it within your social networks.