Added: 02/17/2006 |
Gift tax rate - do not get confusedWhen reading laws we get to know a lot about our life. We see that almost everything is regulated. And seems like it is so easy to
unintentionally break the law. Let us look at the federal gift tax. May be you think that gifting is a great deed and it should be highly appreciated by everyone, including the state? It is appreciated, but taxed as well. And sometimes you may even have no idea that you are making a gift, because there is a special definition for gift in the law. And we are happy to tell you about gift taxation.
It is written in the law that any person has a right to make gifts, but if the value of the gifts made in a year is higher than $11,000, you need to pay tax. Moreover, a receiver, who gets more than $11,000 a year as a gift, owes an income tax on a gift. Moreover, a person can make presents on $1,000,000 of total price before he begins to owe gift tax.
You had better get acquainted with the law, because it may happen so that you make a present even when you do not mean to. First of all, it can happen because everything that you give to a person, and not getting back the full price, is considered to be a gift. Pay your attention to the word "full." Even if you get money back, but not the full price, it is still considered to be a gift. Imagine that your grown-up daughter lives in another city and you send her some money for living expenses. It is a gift because you are not obliged to help your adult daughter. And if you send her more than $11,000 per year you both need to pay taxes.
In fact, when you read about the gift tax rate and gift tax limits it may seem to you to be a bit complicated. But remember that American laws are the most understandable in the world. They are written for people, not professionals, so there should be no problem for you to understand the law. Moreover, when typing "gift tax laws" in a search line of any Internet search engine, you can get many articles and comments on gift tax rates, and the methods of reducing costs. Just look at the situation. You are going to help your grandchild to get higher education. You can send $15,000 directly to the University and pay for his education and then send your grandchild $11,000 more for books and living expenses. When you pay for education, it is a gift that is not taxable. And then you give your grandchild $11,000, and that is some of money that you can gift without being taxed. But you can also send your grandchild $26,000 and ask him to pay for his university course. But then you will have to pay taxes for $15,000 - since you exceeded $11,000 that is not taxed. Moreover, that $15,000 in the latter case will be counted as a part of $1,000,000 that you can gift during your lifetime without being taxed. The tax rate for gifts that exceed $1,000,000 in value, is about 47%. So, sometimes when you try to help your children avoid estate taxes after your death, it is not quite reasonable, because we have new estate taxation.
We highly recommend you to be attentive to laws and to the gift tax rate. Sometimes you need just to get to know details and then you will be probably unable to think about the gift tax rate and federal gift tax in general.
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