Our clients in Georgia ask questions regarding the Georgia gift tax. But gift tax issues can be complex and are not understood by legal professionals, accountants, and the public.
This article will discuss how the gift tax works and point out any tips along the way.
Table of contents
What is the gift tax?
A gift is when a transfer is made whereby full consideration is not received back in return. The transfer may actually be direct or indirect, and it is measured in monetary amounts.
The gift tax is a tax imposed when a transfer is made that exceeds the lifetime exemption amount. The gift tax will apply to the transfer by gift of any property, including stocks, mutual funds, and real estate.
The individual who makes the gift is generally responsible for paying any gift tax liability. In some situations, the recipient of the gift will agree to pay the tax. But in reality, this doesn’t happen much.
Georgia Gift Tax
Fortunately, I have some good news for you. Georgia does not impose a gift tax on its residents.
This is not as rare as you might think. Just 12 states in the country have an estate tax, and very few even have a gift tax.
Annual gift tax exclusion
The IRS gift tax exclusion allows individuals to give away up to $15,000 each year to as many people as they want. They don’t even have to file a gift tax return, and the gifts don’t count against the lifetime exemption amount.
Let’s assume that you are married and you have three children. Each spouse can give away up to $15,000 to each child annually. This would be $45,000 per spouse or $90,000 for the couple. Remember that this gift amount can be made each year.
Tax-Exempt Gifts
We have discussed above how a gift works. But some gifts happen to be exempt from any federal gift tax. Gifts made to the listed organizations will not be subject to the gift tax and do not require the filing of a gift tax return:
- Gifts that are made to an IRS-approved charity;
- Gifts made to a spouse who is a U.S. citizen;
- Payments for another person’s medical expenses (if made directly to a medical provider);
- Fees to cover another person’s tuition or college expenses (if made directly to the educational institution).
Takeaway
Gift tax is usually not a concern for most people. It only impacts fewer than 1% of all taxpayers. But when you make a gift you might have to file a gift tax return even though you likely won’t owe any tax at all.
If you have a considerably large estate, you should consider making annual gifts up to the exclusion amount. It is a great way to reduce your taxable estate.
