The Lifetime Gift Tax Exemption and Annual Gift Tax Exclusion
There are tax-free limits on what you can gift in a year and during your lifetime.
While it may feel better to give than to receive, the former may carry federal tax consequences, which dampens the cheer associated with bestowing a financial gift to a loved one or friend.
But not all financial gifts incur taxation by the federal government. Indeed, you are permitted to gift thousands of dollars each year and millions during your lifetime tax-free — as long as you follow IRS annual and lifetime gifting limits. To make sure that you avoid unexpected tax bills, below are key elements of the Gift Tax Exemption, which governs how the IRS measures and treats your financial gifts.
The lifetime gift tax exemption currently stands at $11.58 million. This means that you can gift up to that amount during your lifetime without incurring a gift tax, and if you’re married, both you and your spouse are entitled to the exemption ($23.16 million total).
The exclusion and exemption limits have increased over time, so it’s best to check with your financial professional to determine the current thresholds.
What about State gift taxes? Currently, Connecticut is the lone state to levy a gift tax. In 2020, the exemption equaled the federal exemption of $11.58 million.
Reporting requirements You must report any gift that exceeds the $15,000 annual gift tax exclusion to the IRS when filing your taxes, even if you have not exceeded your lifetime gift tax exemption.
To determine whether you owe gift taxes or other gift-related taxes, and to assess how to gift money while minimizing your tax consequences, consult a financial or tax professional.
Thanks for checking out the blog.
Joe Breslin, CFP®
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specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. This material was prepared by LPL Financial. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and
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