How to Save Money on The Gift Tax in New York City

The gift tax is a tax imposed on gifts you make during your lifetime. At the federal level, the IRS imposes a gift tax on cumulative gifts exceeding a certain threshold. Additionally, some states like New York impose their own separate gift taxes. If you live in New York or own property there, you need to be aware of both the federal and state gift tax rules to minimize your tax liability.

The gift tax is often overlooked. If you are unaware of the exclusions, it can result in thousands of dollars in unnecessary taxes. But with proper planning, you can avoid or significantly reduce gift taxes on transfers to your loved ones.

The federal government allows you to make some gifts tax-free. By structuring your gifts properly and taking advantage of federal exemptions, you can avoid gift taxes on transfers to individuals. Here are some of the main ways to avoid federal gift tax:

Annual Exclusion Gifts

One of the easiest ways to avoid federal gift tax is to take advantage of the annual exclusion. This allows you to give up to $18,000 per recipient each year without the gifts counting against your $13.61 million lifetime exemption (as of January 2024). For example, if you have 3 children, you could give each child $18,000 annually – $54,000 total – completely tax-free and you’ll still be able to use up the full amount of your lifetime exemption.

Pay Medical and Education Expenses

Payments made directly to the institutions for a family member’s education or health care do not count as taxable gifts. You can pay unlimited amounts for family member’s tuition or medical bills with no gift tax consequences.

Use Your Lifetime Exemption

In addition to the annual exclusion, each individual has a $13.61 million federal gift and estate tax exemption. So you can make lifetime gifts up to this amount before incurring any federal gift tax. Portability allows you to combine exemptions with your spouse where unused exemptions of one spouse upon death can be transferred to the surviving spouse.

Gift Splitting

If you’re married, gift splitting allows you and your spouse to combine your exemptions into one larger exemption even if only one spouse provides the assets. This lets you double the amount covered by the exemptions. For example, if X gifts $36,000 to her brother this year, by gift splitting with her husband on their tax return, it can be reported as two $18,000 gifts – one from X and one from her husband. This allows the annual exclusion to be applied twice, completely avoiding tax on the $36,000 gift.

New York State Estate Tax

New York does not impose gift taxes but it has a 3-year clawback period for gifts that are considered as part of the estate and subjected to estate tax. As of January 2024, the lifetime estate tax exemption is $6.94 million. Any gifts made three years prior to the death of the decedent shall be considered as part of the decedent’s estate, and gifts cumulatively made in excess of exempted amount shall be subjected to estate tax.

Gift tax rules and exemptions can be complicated. With proper planning, however, you can successfully transfer substantial assets to loved ones without incurring tax burdens. We at the Law Offices of Albert Goodwin are here for you.
We are located in Midtown Manhattan in New York City. You can call us at 212-233-1233 or send us an email at [email protected].