How Do Gift Taxes Work? And What is the Estate Tax Downgrade with Regards to This Concept
In this blog post, we discuss how gift taxes work, why when people always say I’ll have to pay taxes if I gift more than $15,000 is wrong, and of why the estate tax exemption downgrade for 99% of Americans is literally nothing to fear. Yes that’s right, in today’s blog post I’m answering the question of how do gift taxes work, and discussing why and how you can gift literally as much as you want without paying any taxes, completely in the way of the tax code (you will have to pay for additional tax software so that you can file form 709 to report to the IRS how much you paid in gifts over the $15,000 gift tax exclusion limit and this will reduce the amount that is exempted from estate taxes down from the $11.58M allowed amount….more on this later.) For more information on all things taxes, finance and accounting, read on or subscribe for additional details and information.
Other popular financial concepts that we’ll be discussing on this blog include the following:
Gift Tax Exclusions
Capital Gains Taxes
Index Fund Investing
Mutual Fund Investing
The CPA Exams
The CFA Exams
The Series 7 License
And much more, read on or subscribe to our blog for additional details and information.
How Do Gift Taxes Work, And Here’s What Happens If You Gift More Than $15,000 To Any Person or Persons
So, here’s the gist of how gift taxes work, know how grandma and grandpa always say on Christmas “gifts can’t be more than $15,000?” as it seems these days that just about everyone has an opinion on tax law and finance. Well to make a long story short on this, this is not actually the case, and in fact you can give an unlimited gift contribution to someone without either them or you paying a dime in taxes on it, up to $11,580,000. Once the gift goes above this, it creeps into the estate tax exclusion rule, which is that all transfer of assets from an estate above $11.58 Million are subject to a 40% estate tax to the family that is inheriting it. One way that those wealthy individuals kind of use the tax code to their benefit a little bit, is to start giving away their inheritance to each of their kids in $15,000 increments, per parent and per child. One day you can do this is through say a UTMA account when each child is born. Say you have $20,000,000.00 and you’re like 58, and you have 4 children and a wife. From here, you can give each child $30,000 per year until your presumed end in about 30 or so years, for money that is not taxable by estate tax of $3,600,000 that your family will not have to pay a 40% tax bill on. This would also lower your estate value to just $16,400,000 (assuming no compounding) which would mean that just under $5,000,000 is taxed, so on a $20M estate, you can pay just $2,000,000.00 in estate taxes and leave $18M to your family, not bad if you know how to utilize the tax code properly.
How To Get Over The $15,000 Gift Limit, And Why This is Only Really an Issue for Rich People
So you can actually give any gift up to $11,580,000 without paying estate taxes, or any taxes at all, but you will have to file something known as form 709 for any gift you pay over $15,000 (per parent) to one child. Pay $15,000 per parent to 6 different children, no form needs to be filed and no amount is deducted from your estate tax exclusion amount. Give $16,000 to one kid however, and you’ll now have to file form 709 with the IRS (by the way you will DEFINITELY need to upgrade to a premium tax software on either your TurboTax or H and R block when you do this) so that the IRS can bring your estate tax exclusion down to $11,579,000 that you can leave as an inheritance without your next of kin needing to pay that 40% estate tax. Fun stuff in the good old fashioned US tax code!
Final Thoughts on The Question of How Do Gift Taxes Work, What You Should Know
Thanks again for reading, if you enjoyed this blog post be sure to like, subscribe comment or share it, and as always, stay tuned for more blog posts on all things Finance, Tax and Accounting. If you have any questions about this concept, definitely comment with where I can help clarify some of this, the only reason I have so much in depth knowledge on this subject is because I have been working in the field of Wealth Management for 3+ years now, and am currently a candidate for the IRS Enrolled Agent Exam, which talks about this concept a lot.
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