2019 Estate and Gift Taxes
The Gift Tax and Estate Tax laws are some of the most complicated the IRS has to offer. But don’t worry; due to the Gift and Estate Tax exclusions, these taxes currently affect only the wealthiest 2% of Americans. If you do have to pay Gift Tax when you prepare and e-File your tax return on eFile.com, the eFile.com app will determine this for you based on your answers to several simple tax questions.
When you give a gift of money or property to someone, you may owe a Gift Tax. A taxable gift is considered to be a transfer of any money or property to another person with no expectation of full compensation or repayment of at least equal value. Reduced-interest or interest-free loans may be considered gifts for tax purposes.
Here are four factors you need to know if you are giving money or property to someone:
There are a number of ways to reduce the amount of Gift Taxes you may owe:
Gifts to Your Spouse: You do not have to pay taxes on any amount given to your spouse as a gift, unless they are not a U.S. citizen.
Education and Medical Expenses: You will not owe tax on any amount paid for someone else’s tuition or medical bills. The payment must be made directly to the educational or medical institution and not to the person receiving the education or medical care.
Charitable Donations: Charitable contributions made to qualifying charities are not only deductible on itemized tax returns, you may also deduct the value of your charitable donations from the amount of Gift Taxes you owe.
Political Contributions: Political donations are considered gifts, not deductible charitable contributions, and you may exclude any amount given to political organizations. The organization must use the money for its own purposes and may not be acting as an intermediary to dispense the funds to a third party.
Annual Gift Exclusion
In 2019, you may give someone up to $15,000 in gifts before paying any gift tax (the amount was the same for Tax Year 2018; if you still need to file your 2018 Tax Return, find 2018 Tax Forms to prepare and paper file since 2018 and earlier Tax Years can no longer be e-filed). The $15,000 annual gift exclusion is a limit on nontaxable gifts per person, and you can give multiple people up to $15,000 each without incurring any tax liability. However, the amounts of your annual gift exclusions are limited to a lifetime total of $11,400,000 for Tax Year 2019 ($5,600,000 for Tax Year 2018). For gifts made to spouses who are not U.S. citizens, the annual exclusion has increased to $155,000.
Married couples may split the value of gifts given together as a couple, which effectively doubles the annual gift exclusion for joint filers. Married couples may exclude a split gift of up to $28,000 per person per year. If a gift is made of community property, each spouse will be considered to be giving half the fair market value of the gift.
In 2019, the individual gift exclusion of $15,000 is portable for married couples. This means that if one spouse does not use up their $15,000 limit, the other spouse may use it. The $15,000 amount also applied to Tax Year 2018 Returns.
When someone inherits money or property, the transfer may be subject to the Estate Tax. The Estate Tax is commonly referred to as the Death Tax because it is the tax paid on the transfer of money and property after a person’s death. If the value of your estate is over the current exemption amount when you die, your estate will owe tax on the excess amount at the applicable Estate Tax rate. The Estate Tax is paid according to the tax rates in place in the year of the person’s death.
Estate Tax Amount and Rate by Year
The 2019 Tax Year $11,400,000 exemption amount is a unified exemption that applies for the combined values of Gifts, Estates, and Generation-Skipping Transfers (the amount was $11,180 in Tax Year 2018). This unified exemption is portable for married couples, so that if one spouse dies before another and their estate does not reach the $11,400,000 limit ($11,180,000 for Tax Year 2018), the other spouse (or their estate) may use the remaining amount.
Value of an Estate
The total value of an estate, called the Gross Estate, includes everything owned at the time of death. This includes cash, securities, insurance, business interests, property assessed at fair market value (not the original value or the purchase price), real estate, annuities, trusts, etc.
Once you figure out your Gross Estate and subtracted the current exemption amount, there are several ways to further reduce the amount of Estate Tax that you may owe. To determine the amount of your taxable estate, you may deduct any of the following from your Gross Estate:
The Generation Skipping Transfer Tax (the GST Tax) is often referred to as the Grandparents Tax because it is the tax charged on transfers of an estate to one’s grandchildren or to another relative more than one generation removed from you. The GST Tax also applies to transfers of an estate to a non-relative who is more than 37 and 1/2 years younger than you. The GST Tax is assessed in addition to any Gift or Estate Taxes which may apply.
GST Tax Amount by Year
The 2019 Tax Year $11,400,000 exemption amount ($11,180,000 in Tax Year 2018) is a unified exemption that covers the values of Gifts, Estates, and Generation-Skipping Transfers combined. The exemption is portable for married couples. If one spouse dies before another and their estate does not use the entire $11,400,000 exemption (or $11,180,000 for 2018 Tax Returns), the other spouse (or their estate) may make use of the remaining amount.
Research & References of 2019 Estate and Gift Taxes|A&C Accounting And Tax Services
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