There are taxes on gifts in the United States. Technically, you should be keeping track of your gift giving so that you can report taxable gifts to the Internal Revenue Service. The reason why most people don’t bother doing this is because of the gift tax exclusions that exists.
In this post we will look at the annual gift tax exclusion in Florence Kentucky and briefly touch upon the unified estate and gift tax exclusion for clarification purposes.
Unified Gift & Estate Tax
The federal gift tax is unified with the estate tax. The gift tax exists to stop people from giving gifts while they are alive to avoid the estate tax.
There is a unified federal gift/estate tax exclusion. In 2014 the amount of this exclusion is $5.34 million per person. If you were to pass away in 2014 after giving taxable gifts during your life totaling exactly $5.34 million, all of your estate would potentially be subject to the estate tax.
Annual Gift Tax Exclusion in Florence Kentucky
You do not start using some of your unified gift/estate tax exclusion as soon as you give a gift to someone, because there is an annual gift tax exclusion. In Florence Kentucky, each person may give gifts to any number of recipients within a given year free of the gift tax as long as each respective recipient does not receive more than $14,000.
If you were to give a gift to someone that exceeds $14,000 in a calendar year, you would be using part of your unified exclusion if you wanted to give the gift free of taxation.
This is something that is not really important to people who do not have assets that exceed the unified exclusion amount of $5.34 million. However, it is very relevant information if your assets do exceed this amount or if you are concerned that Congress might reduce the unified exclusion amount in the future, because the annual exclusion provides a way for you to transfer assets tax-free now to avoid future taxation.
Tax Efficiency Strategies
You can use this annual gift tax exclusion when you are implementing transfer tax efficiency strategies. If you want to transfer millions of dollars, $14,000 per person may not sound like a lot. However, you should think about the long-term.
This is a per person exclusion. If you are married, you and your spouse each have a $14,000 annual exclusion. This means that as a couple you could give $28,000 to each of any number of individuals each calendar year.
If you take advantage of this opportunity and give these gifts to people on your inheritance list over an extended period of time, you can in fact transfer a significant amount of money tax-free.
While you are doing so, you are simultaneously reducing the amount of your taxable estate.
As a result, you should certainly consider using this annual gift tax exclusion in Florence Kentucky if you are concerned about transfer tax exposure.