The good news is this number just went up. Currently you can give away $14,000 per individual per year and not pay gift tax penalties.
Even better, any gifts of $14,000 or less do not count towards your total $5.45 million total exemption (this number represents the 2016 amount allowed).
The gift amount of $14,000 is a $3,000 hike in what you can give as previously this amount was $11,000.
Are individual gifts a good idea? The short answer is yes. Because annual $14,000 gifts are a tax-free way of lowering your potential future tax burden. And this amount is not limited to one child or loved one. You are able to give $14,000 to as many individuals as you choose.
And it’s not limited to one individual. Potentially you and your spouse can each give the maximum $14,000 away. So if you have two children, you and your spouse can give $14,000 to each of them, also to each of their spouses, and to each of their children. This amounts to you taking a whopping $224,000 a year off your total estate, all without ever incurring a gift tax. This giving may even put you into a lower tax bracket rate.
In addition to the annual gift exclusion, the following will also not incur the gift tax:
- Certain charitable giving
- Giving to your spouse
- Direct payment to an educational institution for tuition only
- Gifts of medical expenses paid directly to the medical facility
- Political contributions
So if you have children who need help with their education tuition, or help buying their first house or car or paying off a loan you are able to help them without being hit with a tax on that money.
The gift tax amount is set federally and is adjusted to reflect changes in the cost of living index. If you have more detailed questions about gifts and charitable giving and how yearly giving best fits with your projected financial goals speaking to an attorney who has extensive accounting experience is a good option.