Yes, Uncle Sam wants what’s owed.
But, it’s not all bad! When it comes to gift tax limits, there are some IRS rules to follow and forms to file, but it’s not complicated.
It’s important to understand the federal gift tax exclusion limit guidelines and the workarounds as well.
If you are unsure about what the federal gift tax exclusion is or have questions about it, you’ve come to the right place! Read on for all the information you need to understand the gift tax limit for 2022.
What Is the Gift Tax?
The gift tax is a federal tax put on any transfer of money or property you give to people without getting anything in return.
There is a cap, or exclusion limit, on tax-free gifts. In 2022, you only have to file a gift tax return if the value of the gift is worth more than $16,000 per person for the year. Reported amounts over the $16,000 limit may be taxable.
Is There a Way to Avoid Paying the Gift Tax?
If you want to avoid paying the gift tax, stay below the annual exclusion amount, which is $16,000 in 2022 up from $15,000 in 2021. Gifts that are worth more than that amount will have to be included in your gift tax return filing.
As the gift tax exemption is the amount each individual can give, spouses can each gift up to $16,000 in 2022.
Consider the Lifetime Exclusion
A lifetime exclusion is something to consider if the gift transfer is worth more than $16,000.
The lifetime gift exclusion is set to $12.06 million per individual for 2022. This means that the recipient can receive amounts up to that limit during their lifetime. A married couple’s lifetime exclusion is double because the exclusion is applied on a per-person basis.
When you file these lifetime exclusion gifts, you avoid paying the taxes on them. The information collected by the IRS serves to keep track of gifts received throughout an individual’s life.
It’s important to remember that when the Tax Cuts and Jobs Act of 2017 ends, on December 31, 2025, the federal lifetime exemption amount decreases to $5 million.
How Is the Gift Tax Calculated?
For gifts given in 2022, you can gift up to $16,000 without having to file any tax paperwork. For any amount over that, you must file IRS form 709 to disclose the gift.
The annual gift tax exclusion amount is not a total amount, it’s the maximum gift amount allowed per individual. You can gift amounts of up to $16,000 to as many individuals as you would like without having to report it to the IRS.
There is an unlimited amount that can be gifted between spouses—these do not require a tax filing.
You will also be exempt from gift taxes when you pay someone’s medical institution bills or for the tuition or other payment at an educational institution. For these payments, however, the money must be paid to the institution directly not to the student or patient involved.
Gift Tax Limit 2022
Now that you are aware of the gift tax limit for 2022, you know that your gift limit per recipient is a value of under $16,000. Anything above the gift tax annual exclusion should be reported to the IRS.
Contact the tax experts at Pacific Tax & Financial Group for all of your tax needs and for quick and accurate tax returns. We are tax specialists with the experience and expertise you can trust!