Who Must File and Pay the Federal Gift Tax?

Individuals who make a gift to another individual or entity that exceeds a certain amount must file a gift tax return and pay the federal gift tax. The gift giver can choose to pay the federal gift tax at the time of filing the return or opt to apply the excess against the lifetime unified gift tax and estate tax exemption.

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Computation of the Federal Gift Tax

Federal gift taxes, as well as inheritance taxes, are calculated much in the same fashion as typical property taxes or in some cases unearned income taxes. First, the property or gift amount is assessed and given a value according to the current fair market rates.

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How the Generation Skipping Transfer (GST) Works

The generation skipping transfer tax (GST) is a federal tax imposed on transfers of property made from an individual to someone who is at least two generations younger than they are. Since the transfer’skips’ the generation between the transferee and the transferor, the transferee is often called a’skip-person.’ While the GST tax is most commonly seen applied in situations where a grandparent leaves their grandchild a devise or trust, this tax also applies to any transfer made to an unrelated skip-person who is at least 37.5 years younger than the transferee. The GST does not apply to spouses, however, no matter the age difference.

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State Gift Taxes

For the most part, the gift taxes that are set by the federal government are the only gift taxes that apply to monetary gifts and estate gifts that are given. These gift and estate tax rates are invariable between each of the states and the same rate applies to each state in the country.

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