Gift Tax: If you give someone money or property during your life, you may be subject to US federal gift tax. It also applies to the use of or income from property, without expecting to receive something of at least equal value in return or if you sell something at less than its full value or if you make an interest-free or reduced-interest loan, or similar such cases where something is given for free or lesser value.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts. A) Gifts that are not more than the annual exclusion for the calendar year. B) Tuition or medical expenses you pay for someone (the educational and medical exclusions). C) Gifts to your spouse. D) Gifts to a political organization for its use.In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.
There are two levels of exemption from the gift tax. First, gifts of up to the annual exclusion which is $15,000 for 2020 incur no tax or filing requirement. By splitting their gifts, married couples can give up to twice this amount tax-free. Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($11.58 million for 2020). For estates over that amount, however, such gifts might result in an increase in estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.
A gift tax return in Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return would be filed in any year where gifts exceed the annual limits. However usually taxable is payable only if the accumulated gofts exceeds the threshold say USD 11.58 million in 2020
Estate Tax: When property is transferred after death, estate duty may apply. Property may include cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
Certain liabilities are deducted to arrive at the net Taxable Estate amount. The value of lifetime taxable gifts is added to this number and the tax is computed. The tax is then reduced by the available unified credit. The gross taxable assets including prior taxable gifts exceed a certain amount, example 11.58 million USD as in 2020, then an estate tax return needs to be filed. This return is form 706 ‘United States Estate (and Generation-Skipping Transfer) Tax Return.’ The marginal tax rate on fift and estate taxes is 40%.
Hence gift tax and estate tax are kinked and is payable generally only when the estate or property being transferred at death, after adding taxable gifts during lifetime, is large and exceeds say 12 million approximately.
For more details refer IRS site https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes
