Gifts can be used by wealthy individuals to reduce or manage their estates or to simply pass on portions of their wealth. These gifts are duty-free and therefore whittle down the federal taxes you owe. Additionally, gifts given during your lifetime can be beneficial to your heirs, since instead of owing inheritance tax, they can receive their bequests tax-free.
When you give a gift, though, it can be subjected to federal taxes if it goes past the thresholds set by the IRS. For the year 2015, the federal estate tax exemption was increased to $5.43 million per person, while the gift tax limits stayed at $14,000. This means you can give gifts below $14,000 in value – be it cash or other assets – freely until they all sum up to $5.43 million. Remember that each of your recipients cannot get more than $14,000. Certain limitations also apply for married couples, which a tax lawyer can explain.
Take note that even if some gifts are tax-free, you are still required to file returns on them. Otherwise, you may have to pay fines. If it turns out that you owe taxes on certain gifts, you will have to pay the amount due plus interest and the penalties.
In some cases, you may have missed these returns or duties altogether and are consequently facing a huge tax debt. If so, be sure to consult an IRS tax lawyer to sort out your back taxes accordingly.