Do you take advantage of the gift tax exclusions on your taxes? If you're not already aware of these IRS provisions, the chances are that you're not using them to their full effect. Doing so, though, benefits you in a variety of ways. Here's what you need to know.
What Are the Gift Tax Exclusions?
You may not realize that large gifts to individuals are subject to the federal gift tax, paid by the donor. The reason you likely don't know this is because the first $15,000 (in 2021) given by each taxpayer to any individual is exempted (or, excluded) from this tax. Married taxpayers who file jointly can exclude up to $15,000 per spouse.
In addition to this straight exclusion, you can also exclude money paid on behalf of individuals to institutions to pay certain expenses. This includes medical and education expenses paid directly to medical providers or colleges and universities.
Why Use the Gift Tax Exclusion?
Certainly, if you use this exclusion to gift money or assets directly to individuals or for their welfare, the individuals benefit. Rather than having to wait for your estate to leave them money to pursue goals, they can pursue them right now. This may allow friends or family to gain a degree, to buy a home, or to start a business.
You also benefit by maximizing these IRS allowances. First and foremost, you get to see your gifts in action to a greater extent. By funding something large in a single year, the impact of that gift on your friends, associates, and family grows and becomes more obvious.
Many people also use the gift tax exclusions to ensure their estate doesn't grow large enough to be subject to taxes. Currently, estates over $11,700,000 in combined assets (as of 2021) are subject to federal estate taxes. State estate taxes vary as well. Using the gift tax exclusions can help maintain your estate below these thresholds.
The exclusion amount also helps you plan your giving. It provides a tangible goal to meet with your charitable efforts. You might, for instance, set a donation goal in increments of this $15,000 exclusion and then simply divvy it up among recipients. Dividing the total amount into exclusion amounts prevents any additional paperwork at tax time.
Where Can You Learn About the Exclusions?
Do you want to get started using the gift tax exclusions yourself? Begin with a wealth management consultation. Your consultant will help you identify charitable giving goals and make a strategy that takes into consideration not only your generosity but also your other financial targets and needs. Make an appointment today to maximize your giving tomorrow.