Our clients in Florida ask a lot of questions about estate tax. But how much do you know about Florida gift tax?
This guide aims to discuss how the gift tax works and also to point out a few tips in the process.
What is the gift tax?
A gift is typically defined as a transfer to a person where full consideration is not received in return. The transfer is measured monetarily and can be direct or indirect. In addition, if something is sold at less than fair value, you might have made a gift.
Florida Gift Tax
But I have a bit of good news. Florida does not have a gift tax.
This is not really that rare as only 12 states actually have an estate tax, and in fact, only a couple have a gift tax. People can just give away their entire estate to bypass a state-mandated estate tax in many state situations.
What about the annual gift tax exclusion?
At the IRS level, the gift tax exclusion will allow an individual to gift up to $15,000 each year (per person) without the requirement to file a gift tax return or having the gifts count against the lifetime gift exemption amount.
For example, let’s assume that a married couple has three kids. Each spouse can gift up to $15,000 annually to each kid. This would amount to $45,000 per spouse or $90,000 for the married couple in total.
But let’s consider a different set of facts. Let’s assume the parents each give $20,000 to each kid. These $20,000 gifts are then considered “taxable gifts” by the IRS because each exceeds the $15,000 annual exclusion limit.
But even though the IRS calls them “taxable,” no tax is actually owed unless the lifetime exemption amount has been exceeded. However, a gift tax return (Form 709) is required to be filed.
Most people won’t actually owe any gift tax. It only affects less than 1/2 of 1% of all households. Unfortunately, most people simply don’t have a large enough estate to be concerned. But a gift tax return still might need to be filed to report the gift.
If you have a significant estate, you should consider making annual gifts up to the exclusion limit. It can be a great way to lower your estate without much compliance exposure.