How to Calculate the Gift Tax Rate

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Everyone who is considering giving a substantial gift to someone else should understand not only that there is a gift tax that must be paid, but what the gift tax rate is. There can be significant tax penalties for those who do not take these factors into consideration before making their gift, up to a possible 45% of the gift amount in some cases, as of 2009. However, there are also some tax exclusions that may be able to protect a donor from some tax, or in some cases, any tax.

Rules Governing Gift Taxes

Some wealthy individuals in the past have attempted to avoid the substantial estate taxes their heirs would face after their death by giving away their estate prior to their demise. In order to close this loophole, the IRS enacted a gift tax that would impose a tax upon such gifts as high, or nearly as high, as the estate tax. This law was not meant to penalize those attempting to provide legitimate gifts for their children or others, so there are two types of exclusions that donors may apply:

  • Individual gifts under $13,000 in any given year are not subject to the gift tax, no matter how many such gifts are given
  • Gift amounts over $13,000 can be excluded from the gift tax through a $1 million lifetime, cumulative exclusion. However, that exclusion can also be applied to the estate tax the deceased’s heirs would be required to pay. In 2009, a $3.5 million estate exclusion could be reduced by the amount of the $1 million gift tax credit not used in their lifetime.

There are additional types of gifts that are exempt from gift taxes altogether, including gifts to spouses, gifts of tuition paid directly to the school, gifts of medical payments to medical facilities, and gifts to charitable organizations.

Filing a Gift Tax Return

In many cases, donors must file a Gift Tax Return for gifts upon which they were not required to file an exclusion, such as gifts to spouses. The required paperwork is IRS Form 709, and it contains a table for computing the gift tax, when necessary. It specifies the actual breakdown of when these amounts apply, but in general, the tax rates for 2009 gift taxes range from

  • 18% for taxable gift amounts less than $10,000
  • To 28% for taxable gift amounts less than $100,000
  • To 39% for taxable gift amounts less than $1,000,000
  • To 45% for taxable gift amounts over $2,000,000

These rates only apply to amounts that are not excluded. For a gift of $14,000 in 2009, the rate would be 18% on $1,000, or $180. Of course, if the filer chose to apply that amount to their $1 million lifetime exclusion, they would not owe any gift tax on it at all.

Getting Legal Help with Gift Tax Return Rates

There are many details to include when filing a Gift Tax Return, including documentation, correct tax calculations, and all required gifts. There are penalties for failing to list all gift amounts, as well as for attempting to defraud the government by assigning an incorrect value to the gift or gifts given. A skilled tax lawyer can help prepare IRS Form 709 accurately and thoroughly, as well as take advantage of all the exclusions to which their client is entitled.

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