The Most Misunderstood Tax... That isn’t really a Tax

Most people looking to contribute to a 529 account or just give someone an extra happy birthday have heard of the Gift Tax Exemption.

This exemption means that you can give $14,000 per person ($28,000 as a couple) to a deserving person of your choosing and not incur the dreaded gift tax from the IRS. That sounds generous of the government, but, like any good problem child would ask “What happens if I give more?”.

Well, on the federal level, not a whole lot. You would file a form 709 Federal Gift Tax Return which notifies the IRS that you went over your $14,000 exemption limit for that year. The IRS holds onto that document and subtracts the amount of the overage from your federal estate and gift tax limit, which is currently at $5.49 million per person. You do not actually pay any “gift tax” on that money that tax year.

So, unless you plan on gifting someone a couple hundred grand, or you think your estate will be around $5million you probably don’t have anything to worry about.  State exemption thresholds tend to be much lower, but the estate tax typically isn’t anywhere near the huge 40%  federal number.

Gifting and estate planning is nothing to take lightly and assets where a cost basis is involved can be much trickier than cash. 

If you have any questions on a specific gifting scenario that may be impacting you please don’t hesitate to ask us.