The gift amount for 2023 is one of the most important numbers you can keep track of in your financial life. It represents the amount you can give someone without having to pay gift tax. In 2023, this limit is $17,000 per year, per person, and it includes both money and property.
If you make a gift of more than this, you will owe gift tax and must file an IRS Form 709 to report the gifts. However, there are several exceptions to this rule. In addition, you may be able to use your lifetime gift exclusion to shield the gifts from tax.
First of all, let’s talk about how to know if something is taxable. This isn’t an easy question to answer, and it involves a number of factors.
It all starts with the gift’s fair market value, which is the amount you can reasonably expect someone to pay for a particular item if they were to sell it on the open market.
That’s why it’s important to work with an experienced tax and estate planning professional when making significant, large gifts. They will help you determine whether the gift is taxable and can recommend steps to avoid the tax.
Depending on the circumstances, you may be able to transfer up to $850,000 in total tax-free.
The IRS has announced the annual gift tax exclusion will increase in 2023 to $17,000 per recipient, an inflation-adjusted increase of $1,000 from 2022. Moreover, if you’re married and your spouse consents to a “split gift,” the annual exclusion is doubled to $34,000 for each of you.
You can also reduce your taxable estate by giving a family member a certain amount of money each year in exchange for a life insurance policy, IRA, or retirement plan. This technique can lower your taxable estate by a lot of money and is a great way to pass wealth to your loved ones tax-free.
But before you start to gift away all your assets, there are a few things you need to understand about the gifting rules and exemptions.
In the past, the IRS adjusted these thresholds sporadically. Now, they’re adjusting them more frequently and with more regularity.
This is especially true if you’re in a high-tax state, like California, which has its own complicated rules.
Fortunately, the IRS has increased the annual gift tax exemption amount in each of the last two years and will continue to do so until it’s reached its maximum level of $17,000 in 2023. Hopefully, the increase will inspire more people to give away more money and property to their heirs.
So if you have a large estate, or a lot of wealth you want to pass on to your loved ones, now is the time to get moving. The current estate and gift tax exemption amounts are higher than they’ve ever been, so this is an excellent opportunity to maximize your estate.
This is a good time to begin planning for the future with your tax and estate planning professionals. They can help you identify any potential gifting opportunities and develop a strategy to use those gifts to benefit your loved ones while minimizing your tax liability.
