Do you want to gift money or assets to loved ones while staying tax compliant? As a business owner, understanding federal gift tax implications lets you give generously without financial pitfalls.
Generosity is an admirable trait. Coupled with the right information and strategy, you can continue without creating more of a tax burden on you and your business. Here is what you need to know.
The IRS defines a gift as any asset transfer for below fair value compensation. Common examples include:
Bottom line, if you provide assets without receiving equivalent value in return, it classifies as a gift.
As the gift donor, you pay applicable federal gift taxes. However, gift recipients can file a tax return electing to cover tax instead.
Gift tax rates range from 18-40% based on the gift’s fair market value. The IRS website details current brackets. For additional information on the tax rate limits, visit the IRS website.
In 2023, you can provide up to $17,000 in gifts per individual annually tax and filing-free. You could give $17k each to multiple recipients without exceeding the annual exclusion.
While most gifts fall under the annual exclusion cap before requiring tax filings or payments, some common exceptions exist. These include:
You must file Form 709 for:
Failing to file mandatory gift tax returns leads to owing interest and penalties. Consult a tax professional to ensure compliance.
All is not lost. Even if you plan to give a large gift, there are ways to reduce potential gift taxes. Some of them include:
While this covers high-level federal gift tax rules, individual situations and state laws vary. Meet with an Iota Financial CPA to discuss your unique gifting circumstances and tax planning opportunities. Our goal is helping you give freely while minimizing owed taxes. Reach out to start the conversation!
