Gift tax is a consideration that those making large donations to an individual must consider. The IRS considers a gift anything that is a transfer to an individual, directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.
Generally speaking, the donor is responsible for paying the gift tax, but there are special circumstances where the donee can agree to pay the gift tax. If you’re considering that type of arrangement, you should visit a tax professional.
What Is The Annual Gift Exclusion?
For 2022, the annual gift exclusion is $16,000. This means that any gift given to an individual in 2022 with a value in excess of $16,000 is subject to the gift tax. The federal Gift/ Estate Tax starts at 18% and can reach up to 40% on higher gift amounts.
The annual exclusion applies to individual gifts per donee,, so one donor can give multiple gifts throughout the year as long as they are each under the exclusion amount without having to incur a gift tax.
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What Gifts Are Not Subject To The Gift Tax?
Certain gifts are not considered taxable gifts for gifting purposes. These include:
- Tuition or medical expenses you pay for someone
- Gifts to your spouse
- Gifts to a political organization for its use
What Is The Estate Tax Threshold?
Federal estate tax is applicable to all assets of an estate that exceed 12.06 million dollars in value. The asset is assessed on the current fair market value, rather than the value at the time the deceased acquired it.
Assets inherited by the surviving spouse are generally not subject to the estate tax due to the unlimited marital deduction.
The estate tax is assessed per decedent, thus a surviving spouse could inherit the unused balance of her deceased spouse’s unified credit.