If you make a gift in the United States, you must pay a gift tax: rates and conditions
Did you know that if you give someone too much money, you may have to pay tax for this gift? Most taxpayers are not familiar with the concept of a gift tax that the government charges when transferring money or other assets from one person to another.
This tax actually affects a small number of people. And even if you are generous, and the gifts you make are subject to taxation, there are several ways to legally avoid paying this tax, writes GO Banking Rates.
What is a gift tax?
The Internal Revenue Service (IRS) defines a gift very broadly - “any transfer of value to an individual, directly or indirectly, when it is not fully refunded in return. value (measured in money or in monetary terms) ". In other words, if you give money or property to someone else and don't get anything in return - or if you get paid less than the value of what you are giving in return - you have made a gift.
Do I have to pay taxes on gifts
Responsibility for the payment of gift tax is the donor. Recipients are not required to pay gift tax. However, under certain special arrangements, recipients may agree to pay this tax. This tax is not always mandatory, so if you have made or intend to give someone a gift, you should consult a tax advisor to avoid problems with the law.
The maximum amount of the gift for which you do not need to pay tax
Not all gifts are taxable. As of 2018 year, the amount you can donate without gift tax is 15 000 dollars. This amount of tax exemption is granted to each recipient, not the donor, that is, you can donate up to 15 000 dollars to a large number of people, and you still will not be required to pay tax on gifts, since they fall under the deduction limit.
In addition, there are payments and remittances that are not considered gifts and therefore are not subject to a gift tax, among them:
- Payment for training other people;
- Payment of other people's medical expenses;
- Gifts to your spouse;
- Gifts to political organizations.
Gift tax rate
The gift tax rate starts at 18% and reaches a maximum of 40% for taxable gifts whose value exceeds 1 million dollars. The combined tax rate on taxable gifts worth up to 1 million is 34,58%, which means that if you make a gift worth up to 1 million, you must pay tax in the amount of 345 800 dollars. Gifts worth more than 1 million dollars are taxed at the 40% rate.
Single tax credit
In addition to the annual maximum amount that can be donated without paying a gift tax, the IRS also provides a lifetime tax deduction, known as a single loan. A single loan is often used to protect descendants from property tax, but it can also be used during the taxpayer's life to avoid the gift tax.
As of 2018 year, the amount of the single loan is 11 180 000 dollars. This means that you can either protect your descendants from paying property tax to this amount after you die. Or you can invest up to 11 180 000 dollars in taxable gifts during your entire life and not pay the gift tax.
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