Taxpayers who are concerned about incurring gift taxes upon their death should be certain to make use of the yearly exclusion to the gift tax. With all of the focus on the changes that are set to take place with the lifetime gift tax exemptions and the gift tax rate, people may be overlooking the yearly gift tax exclusion option this year.
In America, almost everything is subject to taxation, including gifts. Gifts made during your lifetime that are over the lifetime exemption amount will be taxed. This year, the lifetime exemption amount is at an all-time high of $5.12 million; however, it is set to decrease to just $1 million when the ball drops on New Year’s Eve. The current gift tax rate of 35 percent is also set to increase to 55 percent. Neither of these, however, affects the yearly gift tax exclusion.
Under the tax code, a taxpayer may gift up to the yearly limit (currently $13,000) to as many beneficiaries as he or she chooses each year. This means that you can give each of your children and grandchildren a gift of up to $13,000 this year free of the gift tax. These yearly gifts are also not used when the lifetime gift tax exemption limit is calculated.
Given the high rate at which gifts are generally taxed, make sure that you take advantage of the yearly exclusion option this year and every year from now on if you need to shift assets and are concerned about incurring gift or estate taxes.