Gift giving can cost more than you bargained for if you have to pay taxes on any gifts you offered up last year. The exclusion for tax year 2022 is $16,000 per recipient in one year. This means you could have gifted someone up to $16,000 last year — the amount increases to $17,000 in 2023 — without having to pay tax on the gift. Anything above and beyond that amount is subject to tax.
A smart way to increase this amount is to give together with your spouse. Even if couples file jointly, the gift tax exclusion applies to each partner separately. This means you could have donated up to $16,000 in gifts per spouse per recipient last year. As a married couple, this translates to $32,000 per gift to one person. If couples did choose to engage in this practice (termed gift splitting) they should consult Instructions for IRS Form 709 to see if they are required to file the form with their 2022 tax return.
Married couples can donate or gift to multiple recipients per year without owing federal tax on the gifts as long as the gifts fall within the lifetime exclusion from federal gift or estate taxes. The lifetime exclusion amount is based on the taxpayer’s year of death. For those who died in 2022, the lifetime exclusion was $12.06 million. The exclusion for taxpayers who die in 2023 is $12.92 million.
Utilizing the lifetime exclusion in tandem with consideration of the annual exclusion limits can serve as an easy way to distribute wealth among family members while avoiding unnecessary tax payments.
Leveraging your marital status can benefit children and/or grandchildren to whom you want to leave large sums of money, without the burden of being taxed on top of it.
The best thing to do is consult your tax professional if you feel there is a possibility you will be hit with any taxes upon giving gifts this year. Most couples will not need to worry, but leveraging your marital status to transfer wealth to other generations — with no federal taxes coming into play — is possible if you go about it the right way.
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Daria Uhlig contributed to the reporting for this article.