People often wonder how much money they can give to someone without becoming responsible for a tax due. Sometimes people make taxable gifts without even realizing it. In other cases, they fail to benefit from their local tax legislation.
Let’s briefly overview West Virginia gift tax principles and see how they can help your estate planning.
What is a taxable gift?
West Virginia is among those states that don’t have a gift tax. However, it does not mean that you can gift away as much money as you wish to anyone without any fiscal consequences.
W.V. residents can still become responsible for the federal gift tax due.
Once you give away money or property, invest in a business, or make an interest-free money loan, the IRS may consider a transaction a taxable gift.
There is a federal gift tax exclusion of $15,000. It means that once you make a gift that exceeds this value, you have to file Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return.
Any gifts under $15,000 are not taxable. Moreover, you can make such gifts to as many people as you wish every year.
For example, if you have 3 children, you can legally gift away $45,000 of your estate every year without affecting your lifetime exemption or being responsible for the tax due. Once you are married, this amount doubles becoming $90,000 every year.
This matter was most crucial for W.V. residents until 2005 when the state was imposing state inheritance (or estate) tax on the property of its deceased residents.
However, today people who have sufficient estate in West Virginia may still be responsible for the federal estate tax once the inheritance exceeds the federal estate tax exclusion. By the year 2021, it is $11,7 million, and the rate is constantly growing.
There are also gifts that IRS does not consider taxable even if they exceed the annual $15,000 exclusion rate. Those are transactions between spouses who are both U.S. citizens and donations made to IRS-approved charities. Payments for someone’s education or medical treatments, which are technically gifts according to the federal taxation principles, are not taxable once transfers are made directly to the institution that provides the service.
While the federal gift and estate taxes are primarily matters of concern for about 1% of American taxpayers due to wide exemption frames, they are still crucial even if you live in West Virginia or any other state without a gift tax.
Knowing the principles of federal gift taxation will help you reduce the taxable estate part and help you avoid unexpected fiscal consequences once you make a gift that exceeds the federal exemption of $15,000, even if such an event happens once in a lifetime.