One of the tax items the ultra wealthy closely track is called the “gift tax.” The gift tax is essentially understood in a much easier to digest manner by gaining an understanding of how you can make gifts that are excluded from taxation.
This tax was set up to allow people to give money or other assets to another person, up to a certain value, without having to pay any taxes on the distributed value of the gift. For the year 2023, the amount of a gift you can give is $17,000 for the year, per individual giving the gift, per individual receiving the gift. If you do happen to go above the $17,000 number, you can take advantage of various exception, however, that may omit any taxes due on gifts given.
Gift Tax Limits 2023
If you do exceed the $17,000 and don’t happen to qualify for any of the exceptions, the amount of gift taxes range from 18% to 40%, and the more you happen to give, the more you will be taxed. In just about every scenario, the donor (gift giver) will be responsible for the tax.
Anything that will be perceived of money value will qualify as a gift. This can include stocks, cash, real estate, and even gold with it’s surging prices. If you forgive a debt to someone, that can be a gift as well.
What is the Gift Tax Exclusion?
The exclusion refers to the amount that you can gift someone each year without having to pay any taxes on it. In 2022, the gift tax exclusion limit was $16,000, and for 223, as stated above, it’s been raised to $17,000. Anything that you were going to give to someone that is below that amount would not require any IRS reporting.
There are some rules involved, which I’ll get into below.
Which Gifts are Not Taxable?
Fortunately there are a number of areas where you can offer someone a gift without the worry of any taxes, including:
- Tuition – must be paid directly to the school
- Medical bills – paid directly to the provider
- Gifts for Spouses
- Gifts related to political contributions
It’s always best to talk to your CPA if you are making any large gifts, as there are always certain exceptions and I always advise to be safe, rather than sorry.
Is There a Limit to How Many People You Can Gift Money Each Year?
Aging, wealthy individuals looking to pass down wealth to their children and great-grandchildren often take advantage of gifting them all money each year, and with good reason – this avoids any estate taxes upon dying.
There is no limit to the amount of individuals you can gift $17,000 to in 203.
If you have five children you want to gift each $17,000, then you can gift the $68,000 tax free in 2023. Further, your spouse can do the same thing legally.
Do 529 College Savings Plan Count as Gifts?
Yes, 529 college savings plan contributions count towards the annual gift tax. Anything over $17,000 this year is subject to taxation.
Giving More Gifts than the Exemption Amount
If you do this, you must file Form 709 with the IRS with your tax return.
That wraps up the gift tax rules for 2023. Please contact me if you have any questions.
About Tim Schmidt
Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He's also a published author, and his views on investing have been featured in USA Today, Tech Times, The Huffington Post, Nasdaq, and many more.
