Aging Options

Gift Taxes

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A common misconception most individuals have is that IRS rules forbid gifts of more than $12,000 per person per year. Though it is true that there is a rule that speaks to gifts needing to be less than $12,000 per person per year, it does not mean that one is unable to make gifts in excess of that sum.

Here is how the gift tax system works. Each of us has a $1,000,000 credit with the IRS. That million dollar credit is the maximum amount of tax free gifts we can make during our lifetime. If we exceed that sum then all excess gifts are subject to gift taxes. The issue then becomes how does one track this sum. Clearly, the IRS does not wish to have every taxpayer send the IRS receipts of every birthday gift, Christmas gift, or other gift – or the IRS would spend more time tracking this information than it would on doing other work.

For that reason Congress passed a law that said that if you make a gift of less than $13,000 per person per year, you do not need to report those gifts to the IRS. But if you exceed that sum then you will need to report the gift to the IRS so that the excess sum can be used to deduct your lifetime million dollar exemption. In your case, clearly there will be no gift tax consequences resulting from the gift. For that reason you will not need to worry about gift taxes.

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