How to Leverage Your Marriage to Avoid Paying Gift Tax

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Ahead of the holiday season, it’s important to know how to avoid gift taxes on any gifts you might be offering up this year. The exclusion for 2021 is $15,000 per recipient in one year. This means you can gift someone up to $15,000 without paying tax on the gift. Anything above and beyond that amount will be subject to tax.

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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 can donate up to $15,000 in gifts per spouse per recipient. As a married couple, this translates to $30,000 per gift to one person. If couples do choose to engage in this practice (termed gift splitting) they should consult IRS Form 709 to see if they are required to file it.

Married couples can donate or gift to multiple recipients per year, as long as it falls within the $11.7 million lifetime exemption from federal gift or estate taxes ($23.4 million for couples).

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The lifetime exemption means that couples can donate up to $23.4 million overall, to all recipients, during their lifetime — without having to pay federal taxes. Utilizing the lifetime exemption in tandem with consideration of the annual exemption limits can serve as an easy way to distribute wealth among family members while avoiding unnecessary tax payments.

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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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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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