Many wealthy people enjoy giving some of it away while they're still around to see the smiling faces. To the IRS, this means that every dollar gifted is essentially removed from one's taxable estate. Those receiving a gift do not owe any taxes on it, either. So, smiles all around.
Of course, the IRS doesn't want all of those taxable estates to be gifted out of the reach of taxation. That's why there's an annual limit, or gift tax exclusion. In 2022, this is $16,000 per recipient. In other words, you can write $16,000 checks until your pen runs out of ink. And so can your spouse. Yes, you can write checks for less than the limit and still generate smiles—and a less taxable estate.
So, instead of buying Twitter, Elon Musk could have written 2.75 million gift checks to his closest friends. But the IRS saw that coming, too. And that's why there's also a lifetime cap on gifting. It's called the Estate and Gift Tax exemption. In 2022, this is $12.06 million per person and double that for a married couple (as long as both are U.S. citizens, that is). So, lucky Twitter shareholders. Or lucky Elon. Or both.
By the way, that $12.06 million limit narrowly escaped being chopped back down to $5 million beginning this year. President Trump increased it dramatically and made it inflation-proof in 2017. But it isn't politics-proof. Unless there's another reprieve, the lifetime limit is still due to be cut in half at the beginning of 2026. When it comes to gifting, there's no time like the present.
Disclosure:
This communication is for informational purposes only and should not necessarily be regarded as legal, tax, or customized financial advice or comment or as an official statement of the firm, or any agents thereof. The information being provided is believed to be from reliable sources. The information is subject to change without notice. J.L. Bainbridge & Co., Inc. is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. The views expressed in this material and in any attachment are those of the sender and do not necessarily reflect the views of the firm. For additional information, please visit https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes.
