How Are Monetary Gifts Taxed?

Amherst, NH Couples Looks to Share Their Wealth with Their Children

Monetary gifts to any one individual that exceed the annual limit of $17,000 will be subjected to the gift
tax. This tax is typically paid by the giver, as opposed to the recipient. This $17,000 amount was set for
2023 but can vary from tax year to tax year. There is also a lifetime exclusion which is set at $12.92
million. Amounts gifted that exceed this amount given to the same person will likely be taxed. The gift
tax is only applicable on monies or assets that exceed the annual exclusion or lifetime exclusion. The tax
rate varies from individual to individual but can be anywhere from 18% to 40%.

A couple in Amherst were looking to give away some of their wealth to their adult children. Wanting to
do this the most strategic way possible, they sought the expertise of Merrimack Tax Associates.

The Gift Tax Applies to Cash or Assets

If you are giving away more than the allowed annual exclusion in cash, stocks, property, or another asset
you will need to file a gift tax return along with your federal tax return. This additional IRS Form 709 will
need to be filed with your tax return to disclose the gift. Married couples can each give away $17,000
without needing to file a gift tax return. The annual exclusion is per recipient and not a total of gifts
given throughout the year.

Who Pays the Gift Tax

A large gift that exceeds the annual exclusion set for the calendar year must be reported by the recipient
when filing their taxes. This puts the gift tax burden on the giver, instead of the receiver of the gift.
However, if these assets later produce income, in the event of a stock, sale of property, etc., the
additional tax burden of this income will fall upon the gift recipient.

The Amherst couple has a better understanding of how the gift tax works. They can now strategically
share their wealth with their children without incurring an extra tax burden.