As we get ready for tax season in 2025, it’s important to know which taxes will go up and which will go down. This year, there is good news for people who have to file estate and gift taxes.
What are gift taxes?
According to the Internal Revenue Service (IRS), the gift tax is a tax on giving something to someone else without getting anything in return or getting less than the full amount. The tax is due even if the donor doesn’t mean for the move to be a gift.
It can be used for things like money, property, loans with no or low interest, sales for less than the item’s estimated value, free or discounted use of property in exchange for profit, and more. The law doesn’t have to be clear about the goal of the action for the IRS to see it as a gift.
Who needs to pay taxes on gift transfers?
There are taxes on gifts, and the person who gives the gift usually has to pay those taxes. People who are getting taxes may offer to pay the difference sometimes, but this should only be done with the permission of a tax expert.
Some gifts are not taxed: gifts to your spouse, gifts to a political organization for their use, gifts that are less than the yearly exclusion for the calendar year, and gifts that you pay for someone else’s tuition or medical bills.
What are estate taxes?
From the IRS’s point of view, the Estate Tax is a tax on your right to give away property after you die. It is a list of all the things you own or have an interest in at the time of your death.
The things’ fair market value is used, which is not always the price you paid for them or how much they were worth when you bought them. Your “Gross Estate” is the sum of all of these things. The things that can be included are money and stocks, real estate, insurance, trusts, annuities, business interests, and other things.
This doesn’t mean that everything you own is taxed, though. You can deduct things like mortgages, other debts, estate management costs, property that goes to surviving spouses and qualified charities, and other things. The amount you owe in taxes is equal to your gross estate minus these discounts.
Who needs to pay taxes on estate transfers?
People in the US will not file their taxes for either of these reasons, which is good news. The “basic exclusion amount” is the only amount that someone would have to report to the government when it comes to estate and gift taxes.
When it comes to death taxes If the gross estate of a U.S. citizen or resident, plus the value of their adjusted taxable gifts and specific gift tax exemption, is more than the filing threshold for the year of their death (shown in the table below), then an estate tax return must be filed.
This “basic exclusion amount” is any amount less than the tax cap, which was $13.61 million in 2024. The cost of life has caused this amount to rise, and it is now $13.99 million per person in 2025. But bad news is on the way.
This amount is because of the Tax Cuts and Jobs Act, which was signed into law by former President Donald Trump. It will end in 2025, so the “basic exclusion amount” will go back to what it was in 2017 ($5,490,000 per person), taking inflation into account.
Taxes will help pay for programs that have been suffering for years because the federal government hasn’t given them enough money. This may be bad news for some people.
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