Buying your kid a car or making a down payment for the house, you are technically making a taxable gift. Even when you lend your friend or relative money without expecting any interest rate, taxation sees it as a gift.
Considering the fact that the Gift Tax can range between 18% and 40% depending on the gift’s value, it is pretty natural that people get concerned about whether the tax due applies to them and how they can deal with it.
Let’s see how the gift tax works in South Carolina and how you can avoid the adverse side effects of your generosity.
Gift tax in South Carolina
The excellent news, Gift Tax does not apply to South Carolina residents. Technically, it means that you can gift away your entire estate in the state, avoiding the state-level estate tax. Moreover, it is one of the most popular and efficient practices to reduce the taxable estate.
However, avoiding state taxation, you can still owe gift taxes at the d=federal level. That is why it is essential to keep the annual gift tax exclusion in mind.
What is a gift tax exclusion?
This federal-level practice foresees that you can give away up to $15,000 or an estate of value without worrying about IRS.
You can make those gifts to anyone and any amount of people annually without filing a gift tax return. This matter is essential because the donor – the one who makes the gift – is the one who carries the gift tax due.
Once you fit into the $15,000 frame giving away your estate, it won’t affect your lifetime exemption and reduce your taxable estate without any adverse side effects.
You can primarily benefit from this practice once you are married and have children. Once each parent can give up to $15,000 to a child, it is at least a $30,000 taxable estate reduction for a family each year.
Moreover, suppose you are making a $20,000 gift to a child, there is a possibility to “shelter” the gift, splitting its value with your spouse. That way, the gift still won’t exceed the $15,000 limit and affect your lifetime gift tax exemption.
Although we are making taxable gifts all the time without even knowing it, residents of South Carolina usually don’t have to worry about it. Moreover, due to the pretty significant federal gift tax exclusion, this matter, in fact, concerns about 1% of American taxpayers as most people simply don’t make this kind of transaction.
However, once you have a significant estate and want to ease the tax burden for your heirs, keeping in mind the state and federal gift tax legislation can help you with your estate planning.