1WeekToWealth General Tax Information

This is a general guide for the amount you may donate to another person annually.
Definitions: Donate, Fund, Gift.

The Annual Gift Tax Exclusion

The annual gift tax exclusion is $15,000 for the 2018 tax year. (It was $14,000 for
the 2017 tax year.) This is the amount of money that you can give as a gift to
one person, in any given year, without having to pay any gift tax. You never
have to pay taxes on gifts that are equal to or less than the annual exclusion
limit.

The annual gift exclusion limit applies on a per-recipient basis. This gift tax
limit isn’t a cap on the total sum of all your gifts for the year. You can make
individual $15,000 gifts to as many people as you want. You just cannot gift
any one recipient more than $15,000 within one year. If you’re married, you and
your spouse can each gift up to $15,000 to any one recipient.

If you gift more than the exclusion to a recipient, you will need to file tax
forms to disclose those gifts to the IRS. You may also have to pay taxes on it.
If that’s the case, the tax rates range from 18% up to 40%. However, you won’t
have to pay any taxes as long as you haven’t hit the lifetime gift tax
exemption.

The Lifetime Gift Tax Exemption

Most taxpayers won’t ever pay gift tax because the IRS allows you to gift up to
$11.2 million over your lifetime without having to pay gift tax. That is
lifetime exemption is double what it was in 2017 ($5.49 million) because of the
new tax plan signed by Trump in 2017 (Tax Cuts and Jobs Act).

So let’s say that in 2018 you gift $215,000 to your friend. This gift is $200,000
over the annual gift exclusion. That means you will need to report it to the
IRS. However, you won’t immediately have to pay tax on that gift. Instead, the
IRS deducts that $200,000 from your lifetime gift tax exemption. Assuming you
have never made any other gifts over the annual exemption, your remaining
lifetime exemption is now $11 million ($11.2 million minus $200,000).

Most taxpayers will reach the gift tax limit of $11.2 million over their lifetimes.
However, the lifetime gift tax exemption becomes important again when you die
and pass on an estate.

April 2018 Update: The IRS announced that the 2018 federal estate and gift tax limit is $11,180,000, based on inflation adjustments. That’s per person, thanks to the December 2017 tax overhaul, so a couple can shelter double that amount. See Trusts In The Age Of Trump: How To Reengineer Your Estate Plan.

December 2017 Update: The tax bill awaiting President Trump’s signature doubles the exemption amount for 2018 through 2025. See Final Tax Bill Includes Huge Estate Tax Win For The Rich. The story below pre-dates the tax overhaul.

It’s official. For 2018, the estate and gift tax exemption is $5.6 million per individual, up from $5.49 million in 2017. That means an individual can leave $5.6 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield north of $11 million ($11.2 million) from federal estate and gift taxes. And the annual gift exclusion amount is $15,000 for 2018—up from $14,000 where it’s been stuck since 2013.

The federal estate and gift tax exemptions rise with inflation, and the Internal Revenue Service announced the new numbers.

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