The Joseph Group

Annual Gifting

September 23, 2022

To Inform:

 

“How much can I give someone each year?” We hear this question often and justifiably so as the amount has changed over the years. In this WealthNotes we’ll demystify personal gifting.

What is the Gift Tax?

The annual gift tax exclusion has been around since the 1920s as a way to prevent taxpayers from avoiding the Estate Tax, among other reasons. It represents the amount any one person can gift any other person each year without being required to file a Gift Tax return. Most individuals would not pay any tax with filing a Gift Tax return (as cumulative lifetime gifts under $12,060,000 in 2022 are not taxed) but gifts over the annual exclusion still require a return to be filed to track cumulative gifts. Filing a Gift Tax return by the gift giver would require the help of a tax professional and the associated costs are why most taxpayers simply try to avoid it.

How much is the Gift Tax exclusion?

The annual gift tax exclusion jumped to $10,000 in 1982 and then began to be indexed for inflation starting in 1997. In 2022, the annual gift tax exclusion increased from $15,000 to $16,000. This amount includes all gifts of cash, property, experiences, etc. where full consideration is not received in return.

Are there any exceptions to the Gift Tax exclusion?

YES! The three big exceptions are:

  1. Gifts to a spouse
  2. Medical expenses paid directly to a healthcare provider
  3. Education expenses paid directly to an educational institution

These gifts can be larger than $16,000 and don’t require a Gift Tax return. Please consult a tax professional about the details for these exceptions.

A Gifting Example:

It may be helpful to consider an annual gift example to see how a family may maximize the exclusion:

Bob and Sally want to help their son Bill and his wife Susan with a down payment on their new home. This year:

  • Bob can gift Bill $16,000
  • Bob can gift Susan $16,000
  • Sally can gift Bill $16,000
  • Sally can gift Susan $16,000

Bob and Sally can transfer $62,000 to Bill and Susan without any Gift Tax consequences. Mechanically, it is recommended four separate checks be written to make these gifts, otherwise a joint gift could occur and require a Gift Tax return to split the gift. One final note for Bob and Sally – remember, it’s September and the annual gift tax exclusion resets again in January, so Bob and Sally can transfer Bill and Susan another $62,000 in January.

Making gifts to friends and family doesn’t have to be complicated. At The Joseph Group we strive to be simple, clear, and encouraging. Give us a call if you would like help with your gifting plan!

 

 

 

 

Written by Todd Walter, Partner and Chief Wealth Planning Officer