While festivities may be somewhat dampened this year due to the coronavirus, the holiday season seems to foster a spirit of giving. This year might be a good time to indulge in the spirit if you have the means to do so. The gifts could save you tons of money in taxes.
Currently, the current law allows you to gift up to $15,000 per person per year without having to pay any gift tax. A married couple could potentially gift up to $30,000 completely tax free. The important item to remember is if the couple gifts more than $30,000, they are the one that must pay the gift tax and not the recipient.
Another available option if the couple wanted to pay more than the annual exclusion is the lifetime exemption. The lifetime exemption for gifts currently sits at $11.5 million per person. Therefore, a couple could potentially gift up to $23 million over their lifetime free of gift taxes. However, this limit is only in place until January of 2026.
Looking closely at the Biden administration, they are looking at raising revenue through taxes. In other words, the lifetime exemption looks like a prime candidate for a raise in revenue. Through preliminary reports, a possible landing number for the lifetime exemption could be $3.5 million. This would allow a couple to only gift up to $7 million through their lifetime. At a tax rate of almost 40%, this could result in significant revenue for the government.
Give Gifts Now
As of right now, the Biden administration is set to take office in a month and a half. If they are to work fast, they could pass legislation the day it is signed, or even retroact to the beginning of the tax year. Unfortunately, this is something we do not know when could be passed. So, the time to make the gift is now. The sooner you can make gifts, the less taxes you will have to pay in the long run. Your safest bet is to make the gift in 2020. Any day after 2021 could lead to a possible change in legislation.
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