The IRS allows you to gift up to $11.2 million over your lifetime (and your estate) without having to pay gift tax. That is lifetime exemption increased (more than double) from $5.49 million in 2017. The Tax Cuts and Jobs Act made many changes to the tax laws including doubling the lifetime Gift and Estate limits. Married couples can each gift up $11.2 million during their lifetime without paying any Gift and Estate taxes. This is subject to change as is with all tax laws and regulations.
A husband and wife can each make $15,000 annual gifts to their loved ones. For example, a couple could make a combined $30,000 gift ($15,000 each) to each of their four grandchildren, for a total of $240,000. It is recommended by the IRS that each spouse gives the $15,000 separately. Lifetime gifts above the annual exclusion amount count towards the lifetime estate/gift tax exemption.
Keep in mind; any portion that’s used to avoid the gift tax reduces the amount that will be exempt from estate tax. For example, if you used $2 million of the exemption to make taxable gifts during your lifetime, you will only be able to exclude $9.2 million from the estate tax. If you surpass the $9.2 million limit, you (or your heirs) will have to pay up to 40% tax.
In addition, if you live in one of the 18 states or the District of Columbia that taxes separate estate and/or inheritance income, there’s even more reasons to plan in advance, with death taxes sometimes starting at the first dollar of an estate.
In general, you must file a Federal gift tax return (IRS Form 709) if you gave someone more than $15,000 during the 2018 year. In some cases, you are required to file Form 709 even if your gift was below the $14,000 annual exclusion. Please note that only individuals must file gift tax returns, corporations and trusts that make gifts will pass the filing and payment responsibilities onto their individual stockholders or beneficiaries. Furthermore, a married couple cannot file a joint gift tax return but must rather file form 709 individually.
Form 709 is an annual return that is due by April 15 of the following year after the gift was made. While form 709 has the same deadline as the individual income tax return (Form 1040), the gift tax return must be filed separately. You can request a 6-month filing extension for your gift tax return with Form 8892 (Application for Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax). However, this is only an extension to file the form. All taxes due must still be paid on Apr 15. Furthermore, if you use Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) to obtain a tax extension for your 1040 return, you will automatically receive an extension for Form 709.
If you or someone you know needs help with business tax preparation or any Tax Liability issue now would be a great time to come in and let us help you resolve the issue. I can be contacted at (212) 320-8191 or by email at email@example.com.
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