Wealthy individuals need to be mindful of how the gift tax works because it plays a huge role in succession planning. Today I’ll share with you the gift tax limits for 2023 as well as provide an understanding on how you can make gifts that will be able to be excluded from taxation.
This tool of passing down wealth to other generations was designed to foster people gifting money or assets of value to another person, up to a defined value, without being obligated to pay taxes on the value of the gift. The gift tax limit for 2023 is $17,000, which is unique to each individual giving the actual gift, to the individual receiving the gift. In the case that you gift above the $17,000 value, you may have exceptions available to you that will forgo any taxes, and I’ll elaborate on that further down this article.
What Will I Learn?
The Gift Tax Limits 2023
Should you happen to gift above $17,000 and you fail to qualify for any exceptions, you will be required to pay taxes on the gifts for the amount exceeding $17,000. The amount will range from 18-40% and as you can assume, the more you gift, the more taxation will be incurred. In most situations, the taxation is the responsibility of the donor.
Assets or any other gift that has perceived value qualifies as a gift. Examples include real estate, stocks, cash, and even precious metals. If you happen to have someone owe you money and you forgive that debt, that can fall under the gift tax rule as well.
What is the Gift Tax Exclusion?
In terms of the exclusion, this is the amount that you can legally gift someone every year and avoid paying taxes on the amount. Last year, in 2022, the gift tax exclusion limit was $16,000, and as I talked about earlier, it’s $17,000 for 2023. If you were to gift anyone any item of value below those amounts, no IRS reporting is required.
Now let’s dive into some rules you should know as they relate to gift taxes.
Which Gifts are Not Taxable?
There are some exceptions that are not taxable, including:
- School Tuition
- Medical bills
- Gifts for Spouses
- Gifts related to political contributions
In the first two cases, the gift MUST be paid directly to the school or medical provider. No exceptions.
If you are looking to make a large gift, please speak to your certified financial advisor to discuss potential tax ramifications.
Is There a Limit to How Much Money You Can Gift Each Year?
The whole purpose of gifting money is to help individuals pass down wealth to younger generations. There are aging individuals who pass down wealth to their children and even grand children every year in order to avoid paying estate taxes.
For 2023, there is no limit to the number of individuals whom you can gift $17,000 to.
So, if you have 10 children you’d like to gift $17,000 each, you can gift $170,000 in 2023 without any tax obligation. Additionally, your spouse can do the same.
Do 529 College Savings Plan Count as Gifts?
529 college savings plans do count as gifts. You can gift up to $17,000 per year to a child’s 529 plan.
Giving More Gifts than the Exemption Amount
If you do intend to gift more money than the exemption amount, you will be required to file Form 709 with the IRS along with your tax return.
And there’s your summary on the gift tax limits for 2023. See you next year with another summary of any gift tax rule changes.