Have you ever wondered if you're going to need to pay taxes when giving or receiving a gift?

What does the Bible say about gifts and giving?

Well, stay tuned as we dive into the world of gift taxes on today's show.

Welcome to our tax talk Thursday.

I'm so glad you chose to join us.

I just want to thank you for listening and more importantly, supporting the program.

I'm coming to you from the Estep Farm and it is a beautiful sunny day here today.

And I'm recording this from the Saggio Accounting studio.

So let me put on my podcaster hat and put down those overalls and let's push that adding machine to the side.

Let's get into some financial wisdom from a Christian perspective.

Today, we're talking all about gift taxes.

What are they?

And how do they impact both the giver as well as the receiver of these gifts?

I know the topic of taxes.

Isn't always the most fun, but understanding gift taxes can save your loved ones, big headaches down the road.

As second Corinthians chapter nine, verse seven reminds us God loves an honor's generous giving when it comes from the heart.

So let's unpack what you can freely.

Give and receive without tax troubles, getting in the way.

Now don't forget to subscribe to the show and join our email list.

You do that at askralphpodcast.com . So you don't miss tomorrow show.

Tomorrow, I'm talking about self storage.

Is it your friend or is it a money sucking foe?

That's right.

Folks.

We're going to talk about the value and maybe the exorbitant costs of self storage And whether it's a good decision for you.

Well, let's start with today's Bible verses.

I said today's Bible verse comes to us from second Corinthians chapter nine, verse seven, and it says this.

Each of you should give what you have decided in your heart to give.

Not reluctantly or under compulsion.

For God loves a cheerful giver.

I think that's a great way to start today's episode.

So let's start by asking this first question, Ralph, what exactly is a gift tax?

Well, simply put it's a federal tax that applies when you transfer property or cash to another person for nothing.

They're not buying it from you or significantly less than it's worth.

There are exclusions and exemptions, but essentially.

Gift taxes come into play when money or assets.

Those are things that you own exchange hands and the giver doesn't get something equal in value in return.

So you're giving something to somebody and they're not giving you something back.

The government wants their slice of large financial gifts to prevent people from avoiding paying estate taxes.

When assets pass hands after someone dies.

That's the whole point here.

The government wants to get their hands on those things that are being transferred from the person who passed away on to the next person generally.

And this is a general statement.

You won't owe ordinary income tax on gift money you receive.

So in general, from a very high level, if you receive a gift, you generally aren't going to pay any tax on that.

But for the giver, it's the person who's giving the gift.

You might know gift taxes.

When the gifts you give over a lifetime and at death exceed the lifetime gift and estate tax exemption amount.

We'll get into the details of that in a moment, which right now set a $12 million.

So to be frank, it's not going to affect many people.

But again, there are exceptions and exclusions that mean most everyday folks don't need to worry about owing gift taxes.

Well, let's break down those exceptions.

The most common gift tax exemption is called the annual gift tax exclusion.

This means any individual can give up to the annual exclusion limit per recipient each year without having to pay gift taxes on it, or report a gift to the IRS.

Now in 2024, this annual amount is $18,000.

What does that mean Ralph?

Well, that basically means that each person can gift up to $18,000 per person per year with no tax implications.

So for example, Let's say you're a family.

You have three kids, you and your spouse could each give a gift of $18,000 to each child without any reporting requirements or owing gift taxes.

That's $108,000 in tax free gifts between the two of you to your family that year.

So that's 18,000 for you, 18,000 for your wife, times three because, you have three children.

This applies to any individual you give money or assets to.

These could be your relatives.

Your friends could be peers.

in church even rolling over inheritance into a spouse's name without needing to report it.

There's no limit on how many separate gifts can qualify for this annual exclusion.

So if you've got a host of friends, you got 30 people that you want to give $18,000 to each.

You can do that without triggering any tax issues.

If you're giving above that $18,000, to someone the excess gets factored into what's called your lifetime gift estate tax exclusion.

Which I mentioned a little while ago is $12 million in assets.

that's what you can give before you owe any taxes and truth is.

For 99% of people we won't ever hit that limit on our lifetime gifts or states.

But talk to a tax pro.

If you have any doubts,

another exception is not having to count and gifts use to pay certain direct medical expenses.

If you paid medical expenses for someone.

Or tuition against the annual or lifetime gift tax exclusion.

So funding, medical procedures or college tuition for loved ones, also avoids gift taxes without dipping into your $18,000 annual exclusion per recipient.

So here's the thing, folks, clever gifting strategies like these help us, your gift taxes, never keep you from generous giving.

And that's the whole point.

We want to figure out a way to help you to be a generous giver.

Now, what about on the receiving end?

Do you owe ordinary income taxes when given cash or assets of a gift?

And like I said, generally, the recipient of a gift does not have to pay income taxes on the value of that gift.

Now some specific examples, like inheriting an IRA or a 401k, you may have distribution taxes to the beneficiary, but gifts wouldn't create that taxable event.

So in other words, if someone gifts you at the time of their death, their IRA or 401k, you really take the role as a beneficiary.

And that tax rule is completely different because that is pre tax money.

Again, I'm going to recommend you talk to a tax pro.

If you have specific inheritance questions.

One area that commonly trips people up being given a sizeable gift to help with a house down payment.

I get this question repeatedly in my practice and here's the answer.

Even large cash gifts for a home purchase, do not create taxable income.

But here's the deal folks, make sure the gift giver properly reports the gift.

If it is over the annual exclusion amount to avoid issues with the IRS on their own gift tax returns that they need to file with the IRS.

So it's going to be over that $18,000.

There may be a tax return that needs to file, but the good news is no income taxes for you, the lucky recipient.

So if your folks want to give you money for down payment on a house, there is absolutely no tax consequence to that gift for you being in the receiver.

Now your folks may need to file a tax return.

That's where they're going to want to talk to a tax professional like myself about that situation.

So let's talk for a moment about what is called the lifetime exclusion.

You've heard me mentioned that a few times.

The lifetime exclusion, or you've heard it called the lifetime gift and estate tax exemption works together with the annual gift tax exclusion, but they serve different purposes.

Here's an explanation.

The lifetime exclusion refers to the total amount you can give away tax-free during your life or at your death before owing any federal estate or gift taxes.

This lifetime exclusion amount is over $12 million per individual.

That's now in 2024, and it includes all taxable gifts.

Exceeding the annual exclusions given over your lifetime.

Plus the total value of your estate when you pass away.

So what is Ralph really talking about here?

If the total value of all the things that you own on the day you die is less than $12 million.

Then there's never going to be an estate or gift tax issue.

Only on very large lifetime gifts.

or estates exceeding the $12 million plus lifetime exclusion would have to pay any gift or state taxes?

So how does the annual exclusion fit in.

It's a very good question.

The annual gift exclusion allows individuals to give up to $18,000 per year.

Now, according, like I said, that's according to 2024.

Per recipient.

Without a counting against that lifetime exclusion amount.

annual gifts under the $18,000 aren't reported or tracked because they don't reduce your lifetime exclusion amount.

Basically what I'm saying is if you have a very large estate, that's getting close to that $12 million mark.

One of the things you might want to consider is gifting that money each year to reduce that value of that estate because these $18,000 annual gifts do not count against that lifetime exclusion.

So let's say you had three or four kids, you and your wife could each give, like we talked about earlier that $108,000 a year.

to reduce that lifetime exclusion amount.

in summary.

Lifetime exclusion gifts or estates values beyond $12 million.

Then you're going to hit that gift of state tax limit.

The annual exclusion.

We talked about this a lot today.

$18,000 in annual gifts to each recipient aren't reported or counted against that lifetime amount.

So the two exemptions work in tandem, they work together.

The annual exclusion enables tax-free smaller gifting without tapping into the bigger lifetime exclusion cap each year.

Now listen, folks, most people will never exceed either limit, but they give substantial tax free gifting flexibility.

Before we wrap up, I want to remind our listeners to visit our podcast page, do that at askralphpodcast.com . There you can leave us a review, share your thoughts, or even send us a message with questions for future episodes.

We're building our calendar right now.

And if there's a topic you'd like for me to cover, I would love to hear from you.

Make sure while you're there, you join our email list so we can send you our daily email with what's going on with this show.

And if you have a specific question, you can also schedule a consultation with me.

For example, let's say you want to talk about some of these estate or gift tax issues.

I be happy to meet with you.

We can do a zoom meeting, but you can schedule that right from the website.

And here's one thing I want to ask you to do.

If you know, someone who is considering giving a gift or will be receiving a gift, do me a favor and share this episode with them.

It might be a great starting point for them to have these discussions.

To recap, the key takeaways on gift taxes are these gifts up to $18,000 fall under the annual exclusion limit each year.

And they're not taxable.

And they don't use up that lifetime gift and estate tax exemption amount,

direct payments for school and medical expenses.

Also avoid these gift taxes.

Recipients don't owe income tax on gift money.

And as we talked about the lifetime exemption over $12 million means most people.

Won't ever get close to owing actual gift taxes.

So let's talk about some actionable next steps.

If you've been blessed enough to gift money over $18,000 to loved ones or received sizeable gifts, yourself, talk to a tax professional to make sure they handle the reporting properly on your returns.

And always, always, always.

Get valuations on any non-cash asset gifts, those would be things like maybe.

Art collections or something like that.

And if giving money for a specific purpose, like education or medical expenses, make sure you document how those funds were used.

Get a copy of the receipt, get a copy of the medical bill or the tuition bill

Staying organized with good documentation helps everything pass IRS scrutiny.

If those tax forms ever get reviewed later on.

So have the proper documentation, proper planning sets up both the giver and the receiver for smooth sailing.

And as the Bible reminds us.

Approach gifting from a heart of generosity.

No matter the amount our riches come from above.

So stay focused on stewarding worldly goods.

Rather than being anxious about every tax consequence.

Seek wisdom.

And righteous motives.

I pray our talk today has blessed you with greater confidence to give freely.

Receive thankfully, and nurture an attitude of generosity that honors Christ.

Again, head over to our website at askralphpodcast.com and share this episode on gift taxes.

If you found it helpful, please feel free to reach out with any followup tax questions anytime.

And as I always say, Stay financially savvy, and God bless you today.