'Tis the Season of Giving: Explaining the Federal Gift Tax

'Tis the Season of Giving: Explaining the Federal Gift Tax

Residents of the state of Utah are not subject to a state gift tax. Therefore, the people of Utah are free to give as many gifts as they like without having to pay state taxes. However, Utahns are still subject to the federal gift tax system. Here we'll explain how this affects the act of gifting in the state of Utah.

Federal Gift Tax Basics

The federal version of the gift tax can apply to any gifts made during your life. Gifts can be in the form of money, personal items, or other types of property. When discussing the gift tax it is important to understand how it interplays with the federal estate tax exemption. The current federal estate tax exemption is approximately $5.49 million. This means that your estate won't be taxed by the federal government unless it exceeds this high ceiling. When you make certain high value gifts part of the value can be used to reduce the $5.49 million estate tax exemption. Fortunately, most people won't get to that point!

Each citizen is allowed to gift a certain amount of value to another person on an annual basis. At this time, the federal tax laws allow you to give up to $14,000 of gifts to a person per year. Two spouses together can gift up to $28,000 to another person. When the other person receives a gift that falls within the $14,000 limit he or she is also exempt from paying taxes.

An estate lawyer will point out that the above limit only applies to one person. Therefore, you are free to give similar gifts to other people as long as the total value of your generosity doesn't exceed $14,000 per person, or $28,000 as a married couple. An estate attorney will also advise that gifts given to charities or spouses (in any amount) during your lifetime are not affected by the gift tax. Note that there are exceptions regarding foreign spouses. Furthermore, paying for someone's tuition or medical expenses does not trigger the gift tax as long as the payment is made directly to the institution.

When Taxes Will Apply

If you make a gift (within a year's time) that exceeds the 14k limit the overage will reduce your lifetime estate tax exemption. For example, if a brother gives $50,000 to his sister the remaining $36,000 would be taxable and would reduce the brother's estate tax exemption under federal law. Most people will never gift enough to reach the federal estate tax limit. However, an experienced attorney in estate law knows that lifetime gifts are combined with the gifts (or bequests) that are distributed from the estate at death. In some cases, people who didn't think they reached the high federal limit may actually do so. Therefore, it is important to speak to an experienced attorney that practices estate law for careful planning advice.

Get Legal Assistance With Gift Tax Issues

If you have any estate planning questions or need assistance in a probate hearing contact T.R. Spencer Law Office. Using the federal gift tax regulations to your advantage is complicated. Contact Terry Spencer or Gavin Jensen to make sure you don't overpay taxes!

Tags: Utah, tax, federal tax

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