Let’s discuss the gift tax rules for the United States in 2023:
Lifetime Exemption: You can gift $12.92 million (up from $12.06) over the course of your lifetime without incurring any gift tax. As a married couple, you can combine this amount for $25.84 million gifted before tax.
Gift Tax Rate: Any gift made in excess of your lifetime exemption will be subject to a 40% tax. In other words, if you are unmarried, the $12,920,000 and first dollar gifted will be subject to 40 cents tax.
More fun? There are additional gifts that are excluded from your lifetime exclusion.
Gift Tax annual exclusion: You can gift up to $17,000 a year (up from $16,000) to any number of individuals without eating into your $12.93 million lifetime exemption. If you are married, you and your spouse can combine to gift up to $34,000 per person, per year. This is in addition to your lifetime exclusion.
Even more fun? There are additional gifts that are excluded from both your lifetime exclusion and your annual exclusion.
Gifts to a Spouse: You can make unlimited tax-free gifts to your US citizen spouse.
Gifts to Charities: You can make unlimited tax-free gifts to qualified charitable organizations.
Gifts for Medical Expenses: You can make unlimited tax-free gifts for someone else’s medical expenses paid directly to the provider.
Gifts for Educational Expenses: You can make unlimited tax-free gifts for someone else’s tuition expenses paid directly to the educational institution. Not lab fees. Not housing. Not books or computers or athletic fees charged by the educational institution – only tuition is the freebie.
Here is an example to maximize your gifting each year.
Let’s assume your son Boo is the father of your darling granddaughter, Gracie. First, pay Gracie’s health insurance premium directly to the provider. Second, pay all other of Gracie’s medical costs by giving Boo a credit card that you pay, with which Boo can charge Gracie’s other medical expenses. Third, pay Gracie’s tuition directly to Gracie’s school. Finally, write Gracie a check for $17,000 and let Gracie pay for her books and athletic fees and lab costs.
You would be delighted to know of the many, many techniques I have available to leverage your gifting if you have a taxable estate. It is magic.