We are fast approaching the holiday season. Yikes! Have you started making your gifting list? And checking it twice? If you have, then it is critical that you are familiar with the gift tax rules which govern your gift. What are the gifting ground rules in Washington? Washington has no gift tax system, which means that there are no forms to file and no information to report to your local Washington governmental institutions whenever you make a gift. This is not true in all states. However, even though Washington does not have a gift tax, a Washington resident still has to worry about federal filing requirements.
In the federal gift tax system, each taxpayer is allowed an “annual exclusion” of $15,000 per year to any single beneficiary. Married couples have the ability to gift a combined $30,000 per year to a single beneficiary. What does this mean? It means that that you could (if you wanted to) gift up to $15,000 ($30,000 for married couples) to each person you know, and as long as the annual exclusion is available, no forms need be filed with the IRS and no tax is due.
A vast majority of people do not concern themselves about exceeding the $15,000 annual exclusion per beneficiary. However, what happens if you do want to give a gift valued at more than $15,000? According to the federal gift tax laws, you still do not need to pay any tax—not yet anyway. Gifts in excess of any available annual exclusion are called “taxable gifts” and, as the name suggests, these are gifts that implicate a gift tax. Where the name is misleading, however, is that in most cases there still is no tax owing. This is because a taxable gift uses some of your lifetime exemption amount. The gift amount over $15,000 made during life reduces the amount available to bequeath tax-free at death. In 2021, this lifetime exemption amount is $11,700,000 per person. When making a taxable gift, the donor would need to file a gift tax return (Form 709) and allocate a portion of their lifetime exemption to cover the gift, tax free. It is that easy, even though it means a separate tax form.
It is important to discuss your gifting goals with your financial planner, CPA, and estate planning attorney prior to making a gift to make sure that it is being done with the best tax result. If you have any questions about gifting or filing gift tax returns, please call Rehberg Law group at 206.246.8772 to schedule a no-cost appointment with one of our attorneys.