As we move through 2024, New Jersey residents may need to understand the current gift tax limits and exemptions. The Garden State does not impose its own gift tax, but residents must still adhere to federal gift tax regulations.
The annual gift exclusions
For 2024, the federal annual gift tax exclusion has increased to $18,000 per recipient, up from $17,000 in 2023, without triggering the need to file a gift tax return. This exclusion applies to each recipient, so you can give multiple $18,000 gifts to different people without incurring the gift tax.
Lifetime gift and estate tax exemptions
In addition to the annual exclusion, there is a lifetime gift and estate tax exemption. This exemption is $13.61 million per individual and $27.22 million for married couples — you can give away these amounts over the course of several years without paying any federal gift tax. However, gifts exceeding the annual exclusion must be reported on IRS Form 709, even if they do not result in immediate tax liability.
Reporting requirements
If individual gifts exceed the annual exclusion amount, the giver must report it to the IRS using Form 709. This form is due by April 15 of the year following the gift. While reporting is mandatory, it does not necessarily mean you will owe taxes immediately. The reported amount will count against your lifetime exemption, and only when your total gifts exceed this exemption will you owe federal gift tax.
Strategies to minimize gift taxes
To minimize potential gift tax liabilities, consider the following strategies:
- Utilize the annual exclusion: Make the most of the $18,000 annual exclusion by spreading your gifts across multiple recipients.
- Use direct payments for medical and educational expenses: Payments made directly to medical or educational institutions on behalf of someone else are not considered taxable gifts and do not count against your annual or lifetime exclusions.
- Gift splitting: Married couples can combine their annual exclusions to give up to $36,000 per recipient without incurring gift tax.
New Jersey does have inheritance taxes
While New Jersey does not have a gift tax, it does impose an inheritance tax on particular beneficiaries. This tax applies to inheritances received by individuals who are not direct descendants or spouses of the deceased. The rates range from 11% to 16%, depending on the relationship between the decedent and the beneficiary.
Thinking strategically is essential
Understanding the gift tax limits and exemptions is crucial for effective estate planning. By leveraging the annual exclusion and lifetime exemption, New Jersey residents can make significant gifts without incurring federal gift tax. Moreover, being aware of the state’s inheritance tax can help you plan for the future distribution of your estate. Those with questions or needing advice can consult with an estate law attorney who can provide personalized guidance.