Do I have To Pay Taxes On Gifts?
There’s a picture of the Grinch here because much like the IRS, the Grinch is out to ruin Christmas by taking a piece of your hard earned cash.
The Grinch and the IRS are not similar, however, in that the IRS doesn’t have a change of heart come Christmas time and return everything they stole from you.
Anyway, I need to put a disclaimer here.
DISCLAIMER: I am not an accountant. I cannot give accounting advice. This blog post is for informational purposes only. Any information discussed here should not be construed as advice, and should be verified by an accountant.
But I am an estate planning attorney. And a lot of my clients give gifts and I work closely with accountants so I know how the gift tax works.
Here’s the answer
A gift is loosely defined by the IRS as something you transfer to another person without expecting anything in return. So, basically, it’s the common sense meaning of the word.
The IRS rule is this: You can gift up to $12.9m dollars in your lifetime without being taxed. (IRS is lowering that number to $6m by 2026.)
Meaning, if all the gifts you make in your lifetime go over $12.9m then the IRS will tax you.
But how does the IRS track all the gifts you make over the course of a lifetime?
That’s a separate rule. The IRS puts the burden on you to report the gifts you made, when you make them. But the IRS understands that there’s holidays and birthdays and it would be super Grinch-like if they required you to report those gifts to the IRS every year.
For this reason the IRS gave another exemption.
You’re allowed to gift up to $17,000 a year without reporting it and without it counting towards your overall $12.9m lifetime exemption.
So if you buy your kid a car worth over $17k, thats a reportable gift. There won’t be any taxes on it because it won’t make your lifetime exemption worth $12.9m but it will count towards that $12.9m.
If you gave your kid a house worth $917,000… it would be a reportable gift becaus it’s over the yearly exemption amount of $17,000….And the other $900,000 would be counted against your lifetime exemption meaning now you’d only have a measly $12m worth of gifts to give away until you get taxed.
If you have estate planning questions or need a will or trust, email me.