Our Wisconsin clients inquire about the Wisconsin gift tax. This can be a critical issue for people looking to reduce their taxable estate. Unfortunately, the gift tax is often misunderstood.
This article is a simple guide to how the gift tax works and avoid any gift tax. Let’s get started.
Table of contents
What is the gift tax?
A gift is defined as any transfer to an individual where full consideration is not received in return. The gift tax is levied on any transfer made over the exemption amount. It also applies to transferring any property, including business interests, real estate, investments, etc.
Many parents make taxable gifts to their children and don’t realize that they are taxable gifts. Gifts can happen when a parent provides a down payment for a home or buys a car for a child.
Wisconsin Gift Tax Rules
Ok, so now I have to confess. Wisconsin does not impose a gift tax on its residents.
Only a dozen states have an estate tax, and very few have a gift tax. In many situations, people can gift away their entire estate to avoid a state-level estate tax.
What is the annual gift tax exclusion?
The federal gift tax exclusion enables an individual to gift another individual up to $15,000 annually without the requirement to file a gift tax return or having those gifts count against the lifetime exemption.
For example, assume a married couple has two children. Each spouse can gift away up to $15,000 to each child on an annual basis. This would be $30,000 per spouse or $60,000 for the married couple. Don’t forget that this gift can be made annually.
The gift tax will only impact less than 1% of all taxpayers, so it should not concern most people. Even though it’s unlikely you will owe any tax, you may still have to file gift tax returns.
Gift planning should be an essential part of your estate planning strategy. Take advantage of the annual exemption and lifetime gift exclusion to lower your estate.