How Much Can You Give Away without Paying Tax?

May 24, 2023

During Memorial Day, many people spend time with their friends and family. With that in mind, I wanted to share a financial tip to those who are considering gifting, or perhaps receiving, financial gifts. I know that there are many misunderstandings about gifting rules, so I hope this helps.

Each year, the government sets a specific amount of money you can give, currently $17,000. This is called the Annual Gift Tax Exclusion, and it allows people to give away money without paying tax or informing the IRS.

This means you can give up to $17,000 to anybody, whether they are a friend or a family member, and do so without tax consequences. If you are married and your spouse also wants to give up to $17,000 to the same person, that’s fine. No one would need to notify the IRS.

Basically, you can give up to $17,000 per year to as many people as you want, all without gift tax liability.

What About Gifts of More Than $17,000?
Let’s say you want to give someone $50,000. Since this is $33,000 more than the annual gift exclusion of $17,000, you – but not the recipient – would need to report this to the IRS when you file your taxes. It’s a simple form.

Many people think that if they give more than $17,000 they will owe tax, but that is not likely the case.

If you give gifts exceeding the annual $17,000 limit, it counts toward your Lifetime Exemption. This is the amount an individual can give over the course of their life – including what you pass on at death – without incurring federal gift tax. That lifetime exemption amount is currently $12.92M per person.

Going back to your $50,000 gift, $33,000 of that would count towards the $12.92M max. That means you’ve used $33,000 of the lifetime exemption, and can “only” give $12,887,000 more before you are subject to that tax.

Exception for Spouses
There is one exception for gifting money to your spouse. You are allowed to give as much to your spouse during your life or at death without tax consequences, as long as your spouse is a U.S. citizen.

If your spouse is not a US citizen, there is an annual gift cap of $175,000 for 2023.

If you have any questions regarding gifting, please reach out.

Thank you and enjoy the weekend!

 

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