Do you have to pay taxes if you give somebody money? Probably not.
The myth that you have to pay taxes on gifts probably stems from the IRS wording about the gift tax. They say that there is only a $15,000 annual exclusion for gifts (in 2020). Anything more than that is called a "taxable gift." So you can see why people would think they'd be paying taxes on gifts over that amount. I mean, it's a taxable gift. That means you pay taxes on the gift, right? Right???
Wrong. In fact, if you give one person more than $15,000, that doesn't mean you have to pay taxes on it. All it means is that you have to fill out a form (Form 709) so that the IRS can keep track of how much you've given away. Once you reach your lifetime gift tax exemption amount, then you will have to start paying taxes. And you can give $15k a year to as many different people as you want, no form required. So do you have to pay gift tax if you give someone money? No. Not unless you give away a whole heck of a lot.
So how much can you give away without paying taxes?
The lifetime gift exemption amount is ridiculous. Guess how much you can give away without paying taxes? Go on, take a guess. It's absurd.
As of 2020, you can give away $11.58 MILLION in your lifetime without paying a cent in taxes. Actually, you can give away that much, plus an extra $15k every year to as many different people as you want. Historically, this is a big jump in the exemption amount, and the amount may be lowered by future laws, but really, do you have to worry about paying taxes on gifts? Unless you're a multimillionaire, probably not.
And even apart from that, you never ever have to pay taxes on the following gifts:
- Gifts to charity
- Gifts to political organizations
- Gifts to your spouse
- Tuition and medical payments, if they were paid directly to the school/medical provider
Will You Ever Have to Pay Taxes on Gifts You Receive?
Short answer: probably not. There are some rare cases where this might not be true, but in general, if you receive a gift, you will not have to pay tax on it. Don't even worry about it.
To sum up, regular people should never have to worry about paying gift tax. That's not a thing. Stop worrying about it.
Once you are so filthy rich that you start giving away literally tens of millions of dollars, then you might want to contact an estate planning attorney to help you work out the best way to give out that money. My favorite idea involves a helicopter and a lot of $2 bills. Maybe that's why I'm not an estate planning attorney.
Do you have any questions about giving money? Do you want to give me money?
If so, please fill out the secure contact form below, or just fly your helicopter to our office address. I'll be ready outside with a basket.