Seems a little crummy, doesn't it? If you choose to give away a large sum of money you already paid taxes on to a single individual, you may have to pay taxes on it again in the form of a gift tax.  The lifetime maximum for 2018 is $5.6 million (up from $5.49 in 2017), much higher than the average person will ever give. According to Reuters, there are at least 6 million households with more than $1 million making the gift tax a reality for more people than we might think. As you age and amass assets, you may find yourself considering gift tax rules. If you wait too long to prepare, it may be too late. Here's what you need to know about the gift tax.

The Details

For 2018 you can give up to $15,000 per year per individual (that figure was $14,000 for 2017). A household with two adults can give up to $30,000 per year to one person for a maximum of $11.2 million. Anything above that is subject to a gift tax rate of 40%. Not all gifts are taxable. If you pay your child or grandchild's education expenses, those are tax-free gifts providing you pay directly to the school. You can also pay for a person's medical bills providing you pay directly to the doctor or hospital. You can gift to your spouse without the money being subject to a gift tax providing your spouse is a U.S. citizen. Note that there are special rules allowing  donors to make gifts worth five years of gift taxes to 529 plans every five years.

Gift vs. Estate Tax

The estate tax is a tax you pay to transfer property to somebody else after your death.  According to Vanguard Investment Group, these taxes are unified. This means that if you gift $500,000 to somebody, that reduces the estate tax and gift tax exclusion both by $500,000.

Planning Your Estate

It may be true that the gift tax doesn't apply to you, but your entire estate may be worth in excess of $1 million once you reach retirement age or older. Although these maximums will adjust with inflation over time, your home and other high-dollar assets may add up to one day surpass the gift or estate tax maximums. If this happens, you may owe a lot more in taxes than you would have if you planned for the event. Because of that, you should meet with an estate planner to develop strategies that can help to reduce your tax bill once you pass away.

The Bottom Line

 If the gift or estate tax rules currently affect you, meet with a tax or estate planner so you're prepared for what could affect you. And keep an eye on tax reform legislation, which may change the gift tax, as well as the estate tax.

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