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03.25.22

How to avoid taxes by utilizing non-taxable gifts

By Michael Ruschioni

There is a limit on the amount of wealth an individual can transfer during their lifetime without having to pay gift taxes. For 2022, the lifetime gift tax exemption amount is $12,060,000, up from $11,700,000 in 2021. Therefore, any amounts transferred during an individual’s life that exceed this exemption will be subject to gift and estate taxes, which can be as high as 40%. With proper estate planning, there are many ways to minimize the amount of taxes that will need to be paid upon an individual’s death.

One of the simplest ways to transfer wealth during your lifetime free of gift tax is to utilize the annual exclusion. The annual exclusion is a set dollar amount each year that an individual can transfer to another individual without it being subject to gift taxation. This amount can be given to any number of people and none of these gifts will be taxable.

For 2022, the annual exclusion amount is $16,000. Spouses can combine their annual exclusion amounts and gift up to $32,000 to each individual and not have to worry about any gift tax consequences. However, a gift tax return will need to be filed in this case to report these split gifts.

The annual exclusion gift is probably the most common wealth transfer technique, but there are other ways to transfer money during your lifetime that will also avoid gift taxes:

  • Tuition costs paid directly to the educational institution for the benefit of another individual
  • Medical expenses paid directly to the medical institution for the benefit of another individual
  • Gifts to your spouse are unlimited as long as your spouse is a US citizen
  • Gifts to charities, a political organization for its use, and other certain exempt organizations

As you can see, there are ways to transfer wealth during your lifetime without having to worry about giving the IRS their share. A little diligence and knowledge will ensure that your wealth can go to the people you want to share it with.

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Author

Michael Ruschioni, CFP®

Professional Staff

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