Gift taxes were created to prevent wealthy taxpayers from transferring their estates to their beneficiaries via gifts and thus avoid estate taxes when they pass away. But that does not mean only wealthy taxpayers need to be concerned with the gift tax provisions as, under many circumstances, even lower-income taxpayers may find they are liable for filing a gift tax return.
The government uses the gift tax return to keep a perpetual record of a taxpayer’s gifts during their lifetime, and gifts exceeding the amount that is annually exempt from the gift tax reduce the taxpayer’s lifetime estate tax exclusion, which is currently $11.18 million (nearly a two-fold increase from the 2017 exclusion as a result of the Tax Cuts and Jobs Act of 2017).
So what does this have to do with me you ask, since your estate is significantly less than $11.18 million? Well, your estate may be less than $11.18 million now, but what will it be when you pass away? You never know. Another concern is that the IRS requires individuals to file gift tax returns if their gifts while living exceed the annual exemption amount.