That $16 million would be out of your estate for good. If you have 1,000 friends on whom you wish to bestow $16,000 each, you can give away $16 million a year without even having to fill out a federal gift-tax form. (You and your spouse together can can make joint gifts up to $32,000 per person, per year to any number of individuals.) The law completely ignores 2022 gifts of up to $16,000 per person, per year, that you give to any number of individuals. You probably have never paid it and probably will never have to. When it comes into play, this tax is owed by the giver of the gift, not the recipient. The gift tax is perhaps the most misunderstood of all taxes. The federal gift tax exists for one reason: to prevent citizens from avoiding the federal estate tax by giving away their money before they die. If you give $18,000 each to ten people in 2022, for example, you'd use up $20,000 of your $12.06 million lifetime tax-free limit-ten times the $2,000 by which your $18,000 gifts exceed the $16,000 per-person annual gift-free amount for 2022. In addition to the annual gift amount, your can give a total of up to $12.06 million in 2022 over your lifetime before you start owing the gift tax. Recipients generally never owe income tax on the gifts. For instance, you can give up to the annual exclusion amount ($16,000 in 2022) to any number of people every year, without facing any gift taxes. But most gifts are not subject to the gift tax. If you give people a lot of money or property, you might have to pay a federal gift tax. Why it pays to understand the federal gift tax law In other words, the gift is not taxed now, but more of your estate could be taxed later. The amount of your annual overages are not taxed, but those amounts are deducted from the $12.06 million exclusion from the estate tax when you die.You can give a total of up to $12.06 million in overages throughout your lifetime before you start owing the gift tax. If you give more than $16,000 in 2022 to someone in one year, you do not automatically have to pay a gift tax on the overage.You can give up to the annual exclusion amount ($16,000 in 2022) to any number of people every year, without facing any gift taxes or filing a gift tax return.To prevent people from avoiding the federal estate tax by giving away their money before they die, the government taxes gifts of money or property above certain levels.
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