Gift Tax Lawyer
What is the Gift Tax and Who Pays It?
The gift tax is a 40% tax imposed upon lifetime gifts which exceed the unified lifetime exemption. Currently the lifetime exemption is ~12 million in 2022 and set to be reduced to ~6 million in 2026. The tax is imposed if, during your life, you gift more than 12 million dollars in the aggregate. The 40% tax is imposed on the amount exceeding the current lifetime exemption amount.
The gift tax itself does not affect a large segment of the population, however, the IRS does require you to report any gift over the annual exemption amount of $16,000 annually per person in 2022.
You may want to consult with a lawyer so you have a good understanding of your obligations if you exceed the annual exemption as you will need to file a Form 709 and use up some of your lifetime exemption.
You will need the services of an expert attorney if you are planning on using lifetime gifting as part of your estate tax planning. Lifetime gifting is a powerful tool used to reduce one’s estate taxes. Speak to a Chandler gift tax attorney today for help reducing gift and estate taxes.
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What is the Unified Exemption and How Does it Work?
The unified exemption is the total exemption amount one can give away both during life, in death, and free and clear of the generation skipping tax. The IRS imposes three types of taxes on transfers for less than fair market value. The gift tax, the estate tax, and the generation skipping tax.
The gift tax is imposed on lifetime gifts exceeding the exemption. The estate tax is imposed on your estate if it exceeds the lifetime exemption minus any lifetime gifts which used up some of your lifetime exemption. The generation skipping tax is imposed on any transfers (while living or after death) which transfers assets to a skip generation. A skip generation is anyone significantly younger than you such as your grandchildren.
What is the Annual Exclusion? Do I Have to File a Gift Tax Return?
The annual exclusion is a carve out from the IRS which allows people to give gifts without fear of using up their lifetime exemption or requiring filing a gift tax return. The annual exclusion is indexed to inflation, but only in increments of 1,000. It is currently 16,000 as of 2022.
In order to qualify for the annual exclusion, the gift must be of a present value. This means you can’t gift a promise to give $16,000 in 2025, it must be immediately usable by the transferee. The exemption applies to each transfer from person to person, meaning a donor may gift $16,000 to each of her grandchildren and her spouse may likewise do the same. If you have any questions about how this works, you should contact a knowledgeable attorney for guidance on how the present value rule works for annual gifting.
Fully Deductible Gifts
While some practitioners consider charitable donations and gifts to spouses exemptions, they are technically deductions of the gift tax. However, they are more similar to an exemption in that these gifts do not require the filing of a gift tax return. As such, we are able to freely gift unlimited amounts to our spouses and to charities.
How Does the IRS Know if You Give a Gift? What if I Fail to File a Gift Tax Return?
Our tax system is based on self reporting. However, the system works quite well and there are auditors whose job it is to find unfiled gift tax returns. So long as your estate plus any lifetime gifts remain under the unified exemption in place at your death, no gift tax will be owed. However, if your estate is above the threshold or close to it, the auditor will ask your personal representative about any lifetime gifts. It is at this point where your lifetime gifting will come into question.
If you don’t file a gift tax return, it falls upon your personal representative or executor to file the missing gift tax returns. By failing to file the returns as required, you are making your personal representative’s job that much harder.
What is Form 709 and How is the Gift Tax Calculated?
Form 709 is the gift tax form. It is filed annually if required. The gift tax is calculated by first removing the total amounts of annually exempt gifts and fully deductible gifts, then taking the total of non-exempt gifts for the year, and then subtract that amount from the lifetime exemption. If you have used up your lifetime exemption, a 40% gift tax is imposed upon all gifts above the exemption.
Do I Need a Gift Tax Lawyer?
If all you are doing is making annual gifts to the people you love and care about, then you don’t need a lawyer so long as you stay below the annual exemption. You may want to consult with a lawyer so you have a good understanding of your obligations if you exceed the annual exemption as you will need to file a Form 709 and use up some of your lifetime exemption.
You will need the services of an expert attorney if you are planning on using lifetime gifting as part of your estate tax planning. Lifetime gifting is a powerful tool used to reduce one’s estate taxes. Speak to a Chandler gift tax attorney today for help reducing gift and estate taxes.
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FAQs
What is gift tax?
The gift tax is a federal tax applied to the transfer of property by one individual to another while receiving nothing, or less than full value, in return. It is designed to prevent individuals from avoiding estate taxes by giving away their money and assets before death.
How does gift tax work?
Gift tax generally works by taxing the donor, not the recipient, on the transfer of assets that exceed specific exemptions. However, taxes are typically only owed once a donor exceeds their lifetime exemption limit, not immediately upon exceeding the annual limit.
What is the annual gift tax exclusion amount?
For the tax year 2025, the annual gift tax exclusion per gifter is $19,000 per recipient. This means you can give up to $19,000 to as many individuals as you like during the year without needing to report it or paying any gift tax.
How to file a gift tax return (Form 709)?
To file a gift tax return, you must complete IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form is filed annually by April 15th of the year following the gift, provided you exceeded the annual exclusion limit for any single recipient.
What is the difference between gift tax and estate tax?
The primary difference is timing: gift tax applies to transfers of wealth made while the donor is alive, while estate tax applies to the transfer of property after death. Both taxes are unified under the same federal exemption system, meaning using your gift tax exemption reduces your available estate tax exemption.
How are gift tax exemptions explained?
There are two main types of exemptions: the annual exclusion and the lifetime exemption. The annual exclusion allows tax-free gifts up to a certain limit each year ($19,000 in 2025), while the lifetime exemption ($13.99 million in 2025) shelters gifts exceeding the annual limit from actual taxation until the cumulative total surpasses the lifetime cap.
Who pays gift tax?
The donor—the person giving the gift—is almost always responsible for paying the gift tax. The recipient of the gift does not typically pay the tax or report the gift as income, except in very rare special arrangements agreed upon by both parties.
What are the gift tax limits for 2025 (IRS)?
For 2025, the IRS set the annual gift tax exclusion per gifter at $19,000 per recipient and the lifetime estate and gift tax exemption at $13.99 million per individual. Married couples in Arizona can combine these amounts to gift $38,000 annually per recipient and shield up to $27.98 million over their lifetimes adjusted for inflation.
What are the benefits of gifting for estate planning?
Strategic gifting reduces the overall size of your taxable estate, potentially lowering the estate tax burden on your heirs upon your death. It also allows you to see your beneficiaries enjoy the assets during your lifetime and removes future appreciation of those assets from your estate.
What steps can reduce gift tax liability?
You can reduce liability by maximizing the annual exclusion for multiple recipients, gift-splitting with a spouse, and making direct payments to educational or medical institutions. Because direct payments for tuition and medical bills are exempt from gift tax rules, they do not count toward your annual or lifetime limits.
Do I have to pay taxes if I exceed the annual limit?
Not necessarily; if you exceed the $19,000 annual limit for a recipient, you must file Form 709 to report the excess. However, you will not actually owe a tax payment to the IRS until your total reported excess gifts over the years exceed your lifetime exemption of $13.99 million.
Are gifts between spouses taxable?
Gifts to a spouse who is a U.S. citizen are generally allowed in unlimited amounts without triggering gift tax due to the unlimited marital deduction. However, if your spouse is not a U.S. citizen, the tax-free gift limit is capped at a specific annual amount ($190,000 for 2025).
Does paying for tuition or medical expenses count as a gift?
No, paying tuition directly to an educational institution or medical expenses directly to a healthcare provider is not considered a taxable gift. These payments are fully exempt and do not reduce your annual exclusion or lifetime exemption, regardless of the amount.
When should I hire a Gift Tax Lawyer?
You should hire a gift tax lawyer if you plan to transfer significant assets, possess a high-net-worth estate, or need to file Form 709 for complex assets like real estate or business shares. Legal counsel ensures you structure gifts correctly to maximize tax savings and remain compliant with IRS regulations.
How can Copper State Planning help with gift taxes?
Copper State Planning provides comprehensive guidance on leveraging gift tax strategies to protect your wealth and legacy. Our attorneys assist with filing accurate returns, structuring trusts, and creating a long-term gifting plan that aligns with your broader estate planning goals.
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