how to avoid gift tax legally | It’s a good idea to consult with a financial advisor or a tax professional to understand the tax implications of your gift.
How To Avoid Gift Tax Legally
There are several ways to avoid gift tax legally:
Annual gift tax exclusion
In Order to How to Avoid Gift Tax Legally, Under the annual gift tax exclusion, you can give gifts of up to $15,000 per year to any individual without incurring gift tax. If you are married, you and your spouse can each give $15,000, for a total of $30,000 per year. This exclusion applies to each recipient, so you can give $15,000 to multiple people in a year without incurring gift tax.
For example, if you are single and you give your friend a gift of $12,000 and your parent a gift of $10,000, you will not incur gift tax because the total value of the gifts is less than the annual exclusion amount of $15,000.
Educational and medical expenses
In Order to How to Avoid Gift Tax Legally, You can pay for someone’s educational or medical expenses without incurring gift tax as long as the payments are made directly to the educational institution or medical provider. For example, if you pay your grandchild’s college tuition directly to the college, you will not incur gift tax. However, if you give your grandchild money to cover their tuition and they use it for other purposes, the money would be subject to gift tax.
Gifts to a spouse
In Order to How to Gift Avoid Tax Legally, You can give any amount of money or property to your spouse without incurring gift tax, as long as your spouse is a U.S. citizen. This is known as the unlimited marital deduction.
Charitable donations
In Order to How to Gift Avoid Tax Legally, Donations to charitable organizations, such as schools, churches, and non-profit organizations, are generally not subject to gift tax.
Political organizations
In Order to How to Avoid Gift Tax Legally, Gifts to political organizations for the use of the organization are not subject to gift tax.
It’s important to note that the above exclusions apply only to gift tax and not to estate tax. Estate tax is a tax on the transfer of property at death. If you are concerned about the potential impact of gift or estate tax on your financial plans, it’s a good idea to consult with a financial advisor or a tax professional.
Gift splitting
In Order to How to Avoid Gift Tax Legally, Gift splitting allows married couples to treat gifts made by one spouse as if they were made by both spouses, effectively doubling the annual exclusion amount. For example, if you are married and you give your friend a gift of $12,000, you can elect to split the gift with your spouse. This means that the gift will be treated as if it were made by both of you, and each of you will be deemed to have given a gift of $6,000. As a result, the gift will not be subject to gift tax because it is less than the annual exclusion amount of $15,000 per individual.
To make an election for gift splitting, you and your spouse must both consent to the election in writing and file a gift tax return for the year in which the gift is made.
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Lifetime gift tax exclusion
In Order to How to Avoid Gift Tax Legally, The lifetime gift tax exclusion allows you to give away a certain amount of money or property over the course of your lifetime without incurring gift tax. As of 2021, the lifetime gift tax exclusion is $11.7 million. This means that you can give away up to $11.7 million in gifts over the course of your lifetime without incurring gift tax.
Gifts to a qualified tuition program
In Order to How to Avoid Gift Tax Legally, Contributions to a qualified tuition program, also known as a 529 plan, are not subject to gift tax. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Contributions to a 529 plan are made with after-tax dollars and can be used to pay for qualified higher education expenses, such as tuition, fees, and certain room and board costs.
Gifts to certain political organizations
In Order to How to Avoid Gift Tax Legally, Gifts to certain political organizations for the use of the organization are not subject to gift tax. Political organizations include political action committees (PACs), political parties, and candidates for public office.
It’s a good idea to consult with a financial advisor or a tax professional to understand the tax implications of your gift-giving and to determine the best approach for your specific situation.
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Frequently Asked Questions?
The best way to avoid paying the gift tax is to structure your gifts over time. If you are giving someone liquid assets, like cash or investment securities, doing so on an annual basis is a good way to avoid triggering gift tax liability.
- Respect the gift tax limit. The best way to avoid paying the gift tax is to stay within the limit set by the IRS.
- Spread a gift out between years.
- Provide a gift directly for medical expenses.
- Provide a gift directly for education expenses.
- Leverage marriage in giving gifts.
Give gifts to family.
For 2022, you can give any one person up to $16,000 tax-free (or up to $32,000 if you’re married and you’re filing joint tax returns). Over the course of your lifetime, you can give out up to $12.06 million (for 2022) of your wealth as gifts before getting hit with the gift tax.
