Clarifying the Gift Tax Return – The $15,000 Rule

Many people are under the mistaken impression that they can only give $15,000 per person per year to avoid gift tax. Actually, the rule is that if you give more than $15,000 to one person in a given year you must file a gift tax return. This allows the IRS to track your lifetime gifts to determine if you exceed the exclusion allowed.

The federal gift tax exclusion amount is currently $15,000 – but that is not the maximum amount you can “gift tax free.”  The gift tax exclusion is the maximum amount you can gift each year to any number of persons without filing a Federal Gift Tax Return, and without having such gifts counted toward your lifetime exemption from federal gift and estate tax.

However, the federal lifetime estate and gift tax exemption is now $11,180,000 for an individual, and twice that for married couples. Maryland does not impose a state gift tax.

So, if you make a gift of more than $15,000 in 2018, you will not owe any tax unless you have already made reportable gifts in excess of your federal lifetime exemption.  The only “penalty” for making a gift in excess of $15,000 is the obligation to file a Federal Gift Tax Return, which allows the Internal Revenue Service to keep track of your lifetime gifting.

If you want to make a gift that exceeds $15,000, go ahead and do it.  Just remember to have your accountant prepare a Gift Tax Return for you. For more information on estate planning and charitable giving, contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.