How to Gift Money
The best tax protected ways to give a gift
One of the big changes brought by the 2018 tax reform is how much money (or stuff) one individual can give before getting taxed. Each person has a lifetime maximum they can give before those gifts are taxed. It used to be $5.49 million. Now it has risen to $5.6 million or $11.2 million for a married couple. However, there are still some rules around giving gifts that are good to know: The tax-smart way to give gifts.
In the past, one person could give gifts of up to $14,000 a year to a single recipient without having to notify the IRS. Now that ceiling has gone up to $15,000 a year per giver to a single recipient. So, you can give $15,000 to each of your ten grandchildren without needing to file Form 709. Moreover, your spouse can also give each of them $15,000 a year. Some experts still recommend filing for any large gift even if you don't have to—to protect your estate from going to probate and being scoured by the IRS when you die. However, it isn't legally required.
Once you exceed the maximum for the year, you have to notify the IRS of the gift. However, you do not have to pay tax on it until you have hit your lifetime gift max. So, if one generous grandparent gives a gift of $20,000 for tuition to a grandchild, they must file, but they will not have to pay taxes on it unless they had already given away $5,580,001.
The gift tax also may apply to other scenarios such as forgiving a debt, making an interest-free or below market interest rate loan, transferring the benefits of an insurance policy, some property settlements in divorce cases and other situations. In each of these cases, an amount exceeding $15,000 per year per individual must be reported.