The end of the year is often a time when people think about making gifts to loved ones for the holidays or for year-end tax planning. Since we are in December, what better time to talk about the Gift Tax?
Here are a few things to know about the gift tax.
- Since there is no gift tax in Massachusetts, residents of the commonwealth need only be concerned about the federal gift tax.
- There are two ‘exemptions’ or ‘freebies’ under the federal gift tax law:
- The Annual Gift Tax Exclusion is the amount that each person may gift to any number of other individuals without any impact on the giver’s Lifetime Gift Tax Exemption. In 2022, the Annual Gift Tax Exclusion amount is $16,000. As of January 1, 2023, the Annual Gift Tax Exclusion amount will be $17,000. Gifts to any one person in a calendar year in excess of the Annual Gift Tax Exclusion amount will reduce the giver’s Lifetime Gift Tax Exemption by the amount in excess of the Annual Exclusion.
- In addition to the Annual Gift Tax Exclusion, each person has a Lifetime Gift Tax Exemption. This Lifetime Exemption is the amount that each person may gift over and above the annual exclusion gifts. In 2022, the Lifetime Exemption is $12,060,000. As of January 1, 2023, the Lifetime Gift Tax Exemption will be $12.9 million.
- There is no limit on the amount you may give to your U.S. citizen spouse free of any federal gift tax. There is an annual exclusion limitation for gifts to non-U.S. citizen spouses. This amount is $164,000 in 2022 and $175,000 in 2023.
- There is no limit on the amount you may pay on behalf of any individual for tuition or medical expenses, provided these payments are made directly to the educational or medical institution.
- There is no gift tax payable on gifts to qualified charities.
The gift tax is not the only tax to take into consideration when thinking about making large gifts; there may be income tax, estate tax, and capital gain tax consequences. And of course, taxes are not the only concern when making large gifts – there may be long-term care ramifications, concerns about a recipient’s ability to handle a large sum, and worries about potential threats to the gift by the recipient’s creditors (divorcing spouse, failed business, lawsuit, etc.). If you are considering making large gifts to family members, talk with your estate plan attorney to make sure you have a good understanding of all of the consequences.
Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
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