Though something like putting a fifty-dollar bill in a birthday card may warrant no second thought, gifting $50,000 means you’ll be taxed on that amount. If you plan on gifting a considerable amount of assets, understanding the Gift Tax you may incur is essential. Luckily, the following blog explores what you should know about this tax and how a Medina, Ohio estate planning lawyer can help you optimize your estate plan to help protect your loved ones.
What Is the Gift Tax?
The Gift Tax refers to the amount of money that can be gifted in one year without the gifter facing taxes on the amount. Generally, a gift is anything given to another person without receiving anything in return or receiving less than the value of the asset gifted. For example, if you gift your children the family home, valued at $800,000 for $100,000, the Internal Revenue Service (IRS) would consider that a gift and you would be taxed on that amount.
Generally, as of 2024, the annual federal Gift Tax is $18,000 per recipient. This means you can gift each child, for example, $18,000 worth of assets without being taxed on any of it. Additionally, the lifetime exemption is now at$13.61 million. Essentially, this means in your lifetime, you can gift up to this amount without being taxed on any of it. For example, if you gift a child $20,000 in one year, you would be over the annual limit by $2,000. However, this will not be taxed as it will go toward your lifetime exemption.
It’s important to understand that, unlike some other states, Ohio does not have its own state Gift Tax. As such, residents will follow federal laws. However, if you are gifting to out-of-state residents, it’s essential to check their state’s laws to determine whether they will incur a state tax.
Is There Any Way to Avoid It?
Though adhering to the annual exemption limits is generally the easiest way to avoid incurring the Gift Tax, there are additional steps you can take to avoid this tax. For example, if you wish to gift the cost of tuition to your grandchild to help them pay for college, they will be taxed on the money when you directly transfer it to them. However, by paying the institution directly, you can avoid the Gift Tax. This also works if you wish to cover the cost of medical care for a loved one; by paying the medical facility instead of giving the money to the patient to pay, you can avoid the associated Gift Tax.
Additionally, strategic estate planning can help you make the most of these circumstances. At Krause Law, we understand wanting to ensure you can provide for your Beneficiaries. As such, we can help you create the best estate plan for your needs and help ease any concerns you may have. Contact us today to learn how we can assist you through these complex matters.
