When you decide to give away your money to friends and loved ones, the government might have to get involved. Yes, a gift tax does exist, and you could end up owing money come tax time if you are not careful about how you distribute your money. A Woodland Hills trust attorney from our firm can help you figure out the best way to pass on assets before you pass away.
How Can I Avoid the Gift Tax Each Year?
There is a certain amount that you can give away each year without having to worry about the gift tax. In 2024, the individual limit has been increased from $17,000 to $18,000. This means that you can give someone up to $18,000 without reporting the transaction to the IRS. If you are married, you and your spouse both have your own $18,000 limit, so you would actually be able to give a loved one up to $36,000 in a year without considering it on your tax return.
What About the Lifetime Limit for Avoiding the Gift Tax?
When you go over that limit, you do need to report the gift. However, you may not end up owing taxes yet. This is because the gift tax also has a lifetime exclusion. You can give away up to $13.61 million before you have to pay a gift tax.
The tax rates on gifts above that limit can vary, ranging from 18% to 40%. If you want to avoid this tax, there may be other, more effective ways to pass on your assets other than giving gifts above your lifetime limit.
Should I Give Money Away?
Giving money away is actually a good idea. When you give gifts to your family members and friends each year, you can reduce the size of your estate. If you are worried about estate taxes, giving gifts is a great way to reduce your potential tax liability. California does not have an estate tax of its own, but the federal government does levy taxes on estates that are a certain size or bigger. Our estate planning lawyers can tell you more about your potential tax burden and how to reduce it.
Another benefit of giving gifts is that you can watch people enjoy the money you’re leaving for them. You can help loved ones get out of debt, purchase homes, or take their dream vacations. This is all stuff that they might be able to do after you pass away and leave them some money, but now you are around and you get to see just what kind of difference your gifts can make.
Contact Our Law Firm
If you are considering giving gifts to your friends and family, contact the Law Offices of Yacoba Ann Feldman. We can help you avoid any expensive pitfalls, and our attorneys can help you make an estate plan of your own if you do not already have one.