North Carolina residents who are lucky enough to have some money to give away should take the time to look into gift tax limits. Contrary to what many people think, the recipient of a large financial gift does not pay tax. Under the transfer tax system, the person who gives a gift is responsible for reporting it to the IRS and paying gift tax.
Individuals can give away up to $14,000 to as many people as they want each year without incurring any gift tax. A married couple can give joint gifts of $28,000 each year. If a person wants to give another person more than $14,000, the gift can be given incrementally over several years to avoid tax consequences. When a gift exceeds the annual gift tax limit, the donor must file IRS form 709. The part of the gift that exceeds the exclusion amount will be taxable.
A person who is planning to give money away should be aware that there is also a lifetime gift tax limit. As of 2017, every person is allowed to give away up to $5.49 million without incurring gift tax. That means that if an individual gives away more than $14,000, the taxable portion of his or her gift will count towards the lifetime gift tax limit. A person must report gifts that exceed $14,000, but he or she will not be taxed on gifts until after the lifetime exclusion limit is reached.
People with large estates may want to make gift planning a part of their estate plans. By making annual gifts to family members, an individual or a couple may be able to decrease the sizes of their estates so that they will not be subject to an estate tax later.