This article delves into the intricacies of the Wisconsin Gift Tax and its interplay with Federal Gift Tax, clarifying that while Wisconsin itself does not impose a state-specific gift tax, the federal gift tax provisions still apply. Understanding the federal gift tax is crucial for residents, as it impacts the transfer of assets during one's lifetime and after death, with various exclusions and exemptions in place.
Is there a Wisconsin-specific gift tax?
No, Wisconsin does not have a state-specific gift tax. However, the federal gift tax still applies.
What Is the Gift Tax and How Does It Work?
If the donor is alive, the federal gift tax refers to gifts of property or assets. The federal estate tax, on the other hand, refers to property transferred to others after a person's death (with the exception of a spouse).
The donor is subject to the gift tax. Although the recipient is not required to pay the gift tax, other taxes, such as income tax, can apply. The federal estate tax has an effect on a deceased person's estate and may limit the amount available to heirs.
Any gift is taxable in theory, although there are a few significant exceptions. Gifts of tuition or medical costs paid directly to a medical or educational institution for another person, for example, are not taxable. The gift tax does not apply to gifts to a U.S. resident partner, gifts to a registered charitable agency, or gifts to a political organization.
If the cumulative gifts to a recipient exceed the annual gift tax exclusion for that calendar year, you are not allowed to file a gift tax return. The Gift Tax was raised to $15,000 in 2018 by the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, and will remain at that level in 2020 and 2021. The exclusion number is adjusted for inflation per year. Each recipient is subject to a different exclusion. Furthermore, gifts from partners are handled separately, so each partner may give the same person a sum up to the annual exclusion amount. Couples may also choose to divide gifts so that all gifts made by either partner during the year are counted as half-gifts. This allows both partners to use their annual gift tax exclusions. To share gifts with your partner, you must file a gift tax return.
Gift taxes are calculated by applying the tax on all gifts made during the tax year that meet the annual exclusion sum to all gift taxes from previous years' gifts that exceeded the exclusion cap. This amount is then deducted from a person's lifetime applicable exclusion amount. You can owe gift taxes if the total amount reaches the lifetime exclusion.
The estate and gift tax basic exclusion amounts were reunified at $5 million (indexed for inflation) by the 2010 Tax Relief Act, and the American Taxpayer Relief Act of 2012 made the higher exemption amount permanent while increasing the estate and gift tax rate to 40%. (up from 35 percent in 2012). The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, is the most recent significant piece of tax legislation. The federal estate tax deduction was doubled to $11.18 million in 2018 as a result of the Tax Cuts and Jobs Act (indexed annually for inflation). The federal estate tax exemption for 2021 will be $11.7 million, up from $11.58 million in 2020. The exclusion is set to return to its pre-2018 stage in 2026.
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To learn about “Irrevocable Trusts for Estate Tax Planning, Gift Tax and Gifting Strategies Explained,” click here.
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