Even with tax cuts regularly in the news and media cycles, many Florida [BW1] residents fail to understand exactly how the changes will affect them and their estate, specifically in relation to the gift tax. A gift is considered a transfer of money to another person or party without anything in return, according to the Internal Revenue Service. These gifts are taxed at certain rates and with different limits, and those have recently changed.
Lowering taxes on an estate can be particularly tricky when tax laws are changed or tax cuts are passed. In 2018, the gift tax exemption was $11.18 million, but has increased to $11.4 million for 2019. This means that an individual or estate can avoid paying federal or gift estate taxes on gifts up to $11.4 million.
As a general rule, any gift is considered taxable, although there are a few exemptions. These include the following[BW2] :
- Medical expenses or tuition
- Gifts given to a spouse
- Gifts that are equal to or less than the annual exclusion
- Any gift given to a political organization
Tax law states that the donor is responsible for paying the gift tax, although an agreement may be made for the payee to pay the tax if special arrangements have been made. While the annual exclusion ($15,000) has not changed, with the adjustments to the law, a married couple will be able to give away $22.8 million before paying any type of gift tax.
These numbers are important because it gives those with a formal estate plan a chance to pass on their wealth and assets without paying large tax fees. For those who want to control where their money goes after they die, a will or estate plan is essential.