Not all US citizens have to pay gift tax, but in some cases, you may still have to file a gift tax return via the IRS.
On the whole, you’ll only ever have to worry about paying gift tax if you send millions of dollars over your lifetime!
Regardless, it’s still a great idea to read up on what gift tax actually entails, and what that lifetime gift tax exclusion actually comes to.
What is the IRS gift limit for 2021?
As of 2021, the annual gift tax exclusion amount is $15,000 – that’s the threshold you will need to pay in gifts before you need to file Form 709 with the IRS.
If you go over this $15,000 value, the IRS will need to know when you file your return in any tax year.
The lifetime exclusion, meanwhile, is rather interesting. Lifetime exemption with regard to gift taxes is very large – an $11.7 million lifetime exclusion applies in 2021!
This has increased from $11.58 million in 2020, meaning it is always likely to increase, year on year, before you have to worry about paying gift tax.
However, you must file tax returns each year – as standard – and you’ll also need to report any gifts of money you offer over that $15,000 threshold.
The tax consequences here are that the IRS will seek to give you penalties if you don’t file properly.
How much can I gift someone tax free in 2021?
In 2021, you’ll be able to give money to a spouse or other recipient within a lifetime gift tax threshold of $11.7 million. Providing you are nowhere near that lifetime cash limit, you won’t have to pay.
However, circumstances will differ per person. One person aged 70 may owe gift tax in 2021 if, over their lifetime, they’ve given away more than the threshold.
The same may apply to an affluent 30-year-old, meanwhile, if they have been particularly generous!
Once you are over the personal finance threshold for gift tax, you will continue having to pay for taxable gifts for as long as you give them.
For many US gift givers, reaching almost $12 million in generosity seems like an impossible target.
But, for more affluent people, it can be easy to reach this level over a lifetime. Always consult legal advice or accounting if you know you are close to the limit!
Do you have to pay taxes on a $2000 gift?
You will only have to pay $2000 on a gift if you push past the lifetime gift tax threshold. If you are below $11 million across your lifetime, you won’t have to worry.
You also likely won’t have to worry if you only make a single gift of $2,000 in one year.
This low a transfer won’t trigger the need for you to file a gift tax return unless you bolster it with an additional $13,000 in related taxable gifts.
Therefore, no – you’ll only ever pay on this gift if you go beyond the lifetime limit.
Keep in mind that, if you are this kind a gift giver, you may be subject to gift tax rates of up to 40%.
This is why it’s still worthwhile keeping track of financial gifts you give per recipient.
You may also be curious, is a gift from a foreign person taxable? Find out if the rules are different.
Do I have to pay taxes on a $10,000 gift?
The same rules apply to a $10,000 gift as they do to a $2,000 gift – you’ll need to go beyond the lifetime threshold.
You could tip over with a $10,000 gift if you’ve already given a lot of money away over your life, but there’s no way this value of money will incur gift taxes in 2021.
However, gifts worth $10,000 or more are close to the annual exclusion for a gift tax return.
That means the IRS Form 709 will be looming – and while you probably won’t have to pay gift tax unless you’re a huge philanthropist, the IRS can and will apply extra fees to your return if you don’t report these gifts.
Just as you’d prepare your income tax reports in any given tax year, it is also incredibly important to take annual exclusion for gift tax into account.
How do I avoid gift tax?
First of all, we’d never advise you to avoid or evade paying any kind of tax – doing so may be illegal, and could therefore land you in serious trouble with federal tax authorities.
However, what you can do is be smart about the gifts you give from year to year.
You won’t have to do anything regarding paying money to others if you fall below that $15,000 limit in any given year.
You’ll still likely need to file a tax return as the IRS demands, but by keeping your gifts low, you can avoid having to file an annual gift tax return perfectly legally.
To avoid having to pay gift tax at all, it is a case of keeping a close eye on your books over the financial years to come.
If you are a generous gift giver and have made considerable money over the years, try and pace yourself!
That’s why it is always wise to have a financial advisor on hand who can help you plan your wealth over decades to pass.
Once you’re over that gift tax threshold, and once you’ve paid more than $11.8 million to people as gifts or presents – you’re going to need to pay tax on anything more you credit per year.
Once those floodgates are open, there’s no turning back!
Conclusion
Unless you’ve given away $11.58 million or more recently, it’s really unlikely you’ll need to worry about gift tax in the US.
However, hitting that $15,000 is all the more feasible, meaning you shouldn’t rest on your laurels.
Be prepared to let the taxman know if you have given away tens of thousands in the past year – but really don’t worry about them pursuing you for more money as a result.
Always ask for help locally if you’re unsure too since this information may not apply to your state or country. For general information on gift tax, you can visit the IRS site.
