Women's Retirement Radio

Russ Thornton - How Gift Taxes Work - Episode 53

February 14, 2022 Russ Thornton Season 3 Episode 7
Women's Retirement Radio
Russ Thornton - How Gift Taxes Work - Episode 53
Show Notes Transcript

In this episode of Women's Retirement Radio, I want to cover a topic that comes up regularly in my conversations with clients. And it's also a topic where there seems to be a lot of confusion.

It's Gift Taxes.

  • How much can you give?
  • Who pays the taxes? 
  • How many people can you give to?

I address these questions and much more in this short episode.

Get in touch and let me know what you think or if you have any questions.

And thank you for listening.

Visit my website to learn more.

And you can also check out this episode on on my YouTube channel.

Disclosures

Russ Thornton:
Hey there, it's Russ, and welcome to another episode of Women's Retirement Radio. Today I thought I would do something a little different. Instead of having another guest on the show, I wanted to tackle a topic by myself, one that I get questions about pretty regularly and one around which I see a lot of confusion. That topic is gift taxes, how they work, how the taxes work, what amounts you can give away, what amounts you can't give away, that sort of thing. So for those listening via a podcast player, I hope this will address any questions or confusion that you may have around gifting and gift taxes. I'm also recording a video of this, and for those that happen to be watching on YouTube, you can see my screen, which I'm about to share, where I will also be covering some notes that I made around gift taxes, which you can hopefully see on the screen now.

Russ Thornton:
So, there was a change. I'm recording this, this is early February of 2022, and just last year, 2021, the annual gift tax exemption was $15,000. What that meant is that you could give up to $15,000 to any number of people, and that can be cash or an equivalent amount of securities or investments, to as many individuals as you like free of any gift taxes owed by you or owed by the recipient. That changed when we flipped over into 2022. The gift tax exemption is now $16,000. An interesting side note is that the gift tax exemption can only change in increments of $1,000. So, the last change prior to 2021 when it went from $14,000 to $15,000 was back in 2018.

Russ Thornton:
So, what happens if you give more than $16,000 to someone in 2022? Well, if you do, you'll be required to file a federal gift tax return and report the gift. But to be clear, neither you nor the recipient will owe any gift taxes on that amount unless you give such a large amount that you use up your entire lifetime gift tax or estate tax exemption. In 2022, that amount or the amount of that exemption is $12,060,000, so I'm pretty confident that most of you listening to or watching this on YouTube will probably not have that amount of money to be given away. You probably don't have that much money period. I know I don't.

Russ Thornton:
So the way it works is think of your lifetime limit as a bucket of money, for example. Every time you give away more than the annual gift tax exemption amount, it basically takes money out of that lifetime bucket amount. So for example, let's say that instead of giving $16,000 to someone in 2022, you instead gave, let's say, $76,000. If you gave that to one person, the $16,000 is exempt from gift taxes. But since you gave $76,000, that additional $60,000 would count against your lifetime exemption amount. So now after that gift, instead of being able to use a lifetime exemption amount of $12,060,000, since you used $60,000 of your lifetime exemption amount, now that amount would be lowered to $12 million even. And so that's a simple way that I like to think about how the annual gift tax exemption works relative to your lifetime gift tax or estate tax exemption.

Russ Thornton:
Even if, and I want to reiterate this, even if you did give a single person $76,000 this year, there are still no taxes owed. You need to report the amount above the $16,000 on a federal gift tax return, but neither you nor the recipient owe any taxes. Again, it just counts against your lifetime exemption amount. The only time taxes are owed is if you give a gift or combination of gifts larger than $12,060,000, which is, again, the lifetime exemption this year in 2022.

Russ Thornton:
It also probably bears noting that unless any legislative changes are made between now and 2025, then we'll see the lifetime gift and estate tax exemption revert back to $5 million per person. And the per person thing's important, as well, because we each have a lifetime limit or exemption amount of $12,060,000, meaning as a couple, you could give away up to $24,120,000 in one year or over your lifetime free of any gift or estate taxes owed. And just by way of comparison, last year in 2021, the lifetime exemption amount was $11.7 million. So it's actually gone up about $360,000 since last year.

Russ Thornton:
Let's see. I don't think there's anything else I wanted to cover on this. If you have any questions, reach out to me. You can get ahold of me via my website, wealthcareforwomen.com. Again, this is just a question that I often get asked about, or it comes up a lot in my conversations when I'm having financial planning conversations with clients. So I hope you found this helpful, and I look forward to catching up with you on our next episode. Take care.