Very few Americans need to worry about federal estate tax or the gift tax. For deaths in 2014, everyone has a lifetime estate tax exemption of $5.34 million, which means you can leave or give away up to $5.34 million without owing any federal tax. Married couples can together leave up to twice that amount free of federal estate tax. (Some states, like Washington, however, impose their own estate tax on smaller estates.)
If you think your estate might owe estate tax, one way to avoid or reduce the tax bill is to give away property during your life. And even if you aren't concerned about estate tax, gifts offer other benefits--you get to see the recipients enjoy your gifts.
In 2014, you can make an unlimited number of $14,000 gifts of cash or other property (like stocks, real estate, or interests in a family business), completely tax-free. To ensure these tax savings, you need to remember that no individual recipient can receive more than $14,000 in a calendar year. The $14,000 annual tax exemption rule (called the "annual exclusion") is pretty straightforward. For example, if you give $20,000 to someone, $14,000 of it is exempt from gift tax, but you must pay gift tax on the remaining $6,000. The exclusion amount is indexed for inflation, rising in $1,000 increments as the cost of living goes up. Couples can combine their annual exclusions, meaning that they can give away $28,000 worth of property tax-free, per year, per recipient.
If you want to learn more about the gift tax exclusion and other estate planning strategies, give us a call at 253.858.5434 to see how we can help.