Illinois Gift Tax: The Simple Guide [Example]

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Paul Sundin, CPA

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We have many clients in Illinois who ask us about the Illinois gift tax. Our job is to understand how gift taxes work and advise clients on their best course of action. 

This article will discuss how state and federal gift taxes work. We will discuss the laws, rules, and limits and offer some compliance tips. 

What is the gift tax?

A gift is when there is a transfer from one individual to another for less than full consideration. Also, it includes selling something at less than fair value or making an interest-free or reduced rate loan.

The gift tax is a tax on a transfer made over an exemption amount. The gift tax applies to the transfer of cash and applies to property, such as stocks, business interests, and real estate.

Illinois Gift Tax

Lucky for Illinois residents, Illinois does not levy a gift tax. 

State gift tax is rare. Only twelve states in the country have an estate tax, and very few assess a gift tax. In many situations, people can gift away their entire estate to avoid a state-level estate tax.

Annual gift tax exclusion 

The federal gift tax exclusion allows a person to give away up to $15,000 annually to as many people as they want. There is no filing requirement or tax to be paid, and it will not count against the lifetime exemption amount. 

A married couple who have four children can give away up to $15,000 to each child annually. These gifts would be $60,000 per spouse or $120,000 for the couple. Remember that you can make gifts annually.

Tax Return Requirements & Rules

You must file Form 709 Tax Return when you make a taxable gift above the annual exclusion. 

For example, assume you gifted $20,000 to your only child. This gift would be a “taxable” gift because it is over the annual exclusion. As a result:

  • You are required to file a gift tax return to report the $5,000 gift over the exemption amount.
  • There is no tax liability unless you are over the lifetime exemption amount.

Final Thoughts

Thankfully, the gift tax will only impact less than 1% of all people. But tax returns still may have to be filed even though no tax is due. 

Annual gifting is a great estate planning strategy that anyone with a large estate should use. Make sure you review the issue with your CPA or estate attorney to get yourself on the path. 

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