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Demystifying Federal Gift Taxes: What You Need to Know

a pile of wrapped gift boxes - purple with white ribbon, green with blue ribbon, red with blue ribbon, and light pink with dark pink ribbon - sit on a white background

Gifting is a heartfelt way to express care and generosity to loved ones, but did you know that there are potential tax implications associated with it? The federal gift tax is a regulation that comes into play when substantial gifts are exchanged, and has guidelines that govern them.

What are Federal Gift Taxes? Simply put, it's a tax on gifts of property or money given to individuals while the giver is still alive. The tax is designed to prevent individuals from circumventing the estate tax by giving away their assets before passing away. However, most people need not worry about federal gift taxes, as there are exemptions and thresholds in place. For 2023, the gift tax exclusion allows individuals to gift up to $17,000 per recipient without triggering any tax consequences. This means you can give $17,000 to as many people as you like without needing to file a gift tax return or pay taxes on those gifts. Plus, each year the exclusion amount is adjusted for inflation, so be sure to research before you give!

If you exceed the annual gift tax exclusion, the amount over per recipient accumulates toward your lifetime gift and estate tax exemption, which is $12.9 million as of 2023. This means you can give away up to $12.9 million in excess of the annual exclusion throughout your lifetime without being subject to gift taxes. If your total gifts exceed this threshold, you may need to file a gift tax return, but you will only owe taxes if you've surpassed the lifetime exemption.

Federal gift taxes are a nuanced aspect of financial planning that come into play when significant gifts are made. Understanding the annual gift tax exclusion, the lifetime exemption, and the thresholds can help individuals navigate gifting without undue tax burdens. If you're considering making substantial gifts, it's advisable to consult with a professional to ensure compliance with federal gift tax regulations and explore strategies that align with your financial goals. Gifting remains a wonderful way to share your wealth, and with proper understanding, you can do so while staying within the bounds of the federal gift tax framework. Be sure to make an appointment with one of our financial experts to explore your gifting options!

Want to learn more about Gift Tax? Check out the Futurity Wealth Management blog below!

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