Can I Be Taxed for Gifting My Business?

Key Takeaways

• The 2026 federal annual gift tax exclusion is $19,000 per recipient ($38,000 for spouses who split gifts), and the lifetime exemption is a permanent $15 million per person under the OBBBA.

• The donor, not the person receiving the business, is responsible for any federal gift tax owed on the transfer.

• Virginia is the most gift-friendly DMV jurisdiction: it imposes no estate tax, no inheritance tax, and no gift tax.

• Maryland is the only state with both an estate tax ($5 million exemption, up to 16%) and a 10% inheritance tax on transfers to non-relatives such as key employees or unrelated partners.

• Washington, D.C. taxes estates above $4,988,400 in 2026 at rates from 11.2% to 16%, but imposes no inheritance tax and no gift tax.

For business owners in Maryland, Virginia, or Washington, D.C. who want to pass a company to a child, partner, or key employee, the first question is usually whether the transfer triggers a tax — and which government collects it. Under federal law, the person giving the business (the donor), not the recipient, may owe gift tax. Yet with the right plan, most owners across the DMV can transfer ownership without paying any gift tax at all. What changes the math is geography: the same gift can carry very different state consequences depending on whether you are based in Annapolis, Arlington, or the District.

This guide from our Maryland, D.C., and Virginia tax attorney explains who pays the gift tax, how the 2026 federal exclusion and lifetime exemption work, and how estate, gift, and inheritance taxes compare across all three DMV jurisdictions so you can plan your business succession with confidence.

“Virginia imposes no death taxes at all, Maryland layers a $5 million estate tax on top of a 10% inheritance tax, and Washington, D.C. taxes estates above $4.99 million — so where your business sits in the DMV can change your gifting strategy as much as the federal rules do.”

Who Pays the Gift Tax on a Business Transfer?

A gift tax is a federal tax on transfers of property or money where the giver receives less than fair market value in return. When you gift your business, even to a family member, the donor pays any gift tax, not the recipient. The Internal Revenue Service requires the donor to report gifts above the annual exclusion and, if applicable, pay tax once cumulative lifetime gifts also exceed the lifetime exemption.

This distinction matters. The person receiving your business interest does not owe income tax on the gift itself. They do, however, take over your cost basis in the asset, which affects the tax they pay when they eventually sell. Structuring the transfer carefully protects both sides.

What Is the 2026 Gift Tax Exclusion?

For 2026, the federal annual gift tax exclusion stays at $19,000 per recipient, unchanged from 2025. If the value of the interest you transfer to one person stays under $19,000 in a calendar year, you owe no gift tax and are not required to file a gift tax return (Form 709).

The exclusion applies per recipient, so you can give several family members $19,000 each in the same year. Spouses can elect gift-splitting, doubling the figure to $38,000 per recipient. A couple with three children can transfer up to $114,000 a year — roughly $2.28 million over two decades — without touching their lifetime exemption.

How Does the Lifetime Exemption Work After the OBBBA?

The One Big Beautiful Bill Act, signed into law on July 4, 2025, made the federal estate and gift tax exemption permanent and set it at $15 million per individual for 2026 ($30 million for married couples), indexed for inflation. If a gift exceeds the $19,000 annual exclusion, you report the excess on Form 709, but you generally owe no gift tax until your cumulative lifetime gifts pass $15 million. That is up from $13.99 million in 2025, and it eliminates the scheduled sunset that would have cut the exemption roughly in half.

For most DMV business owners, this means even a substantial company can be transferred during life with little or no federal gift tax. The larger exposure is usually at the state level, where the thresholds are far lower.

Why Business Valuation Matters When Gifting

Before gifting a business, have it valued by a qualified appraiser. The IRS scrutinizes the value of gifted businesses against fair market value — the price a willing buyer and willing seller would agree on, neither under compulsion and both reasonably informed. An inaccurate valuation can invite additional tax, interest, and penalties. A defensible appraisal, adequately disclosed on Form 709, generally starts the three-year period for the IRS to review the reported gift.

Closely held interests often qualify for valuation discounts that lower the taxable value of the gift. A discount for lack of control reflects that a minority owner cannot direct the business, and a discount for lack of marketability reflects how hard it is to sell a private company interest. Combined, these discounts often fall in the 10% to 45% range, letting you transfer more of your business while using less of your exemption. The IRS evaluates closely held business valuations under longstanding guidance such as Revenue Ruling 59-60.

How Do Estate, Gift, and Inheritance Taxes Compare Across the DMV?

The federal rules above apply everywhere, but Maryland, Virginia, and Washington, D.C. treat transfers at death very differently. None of the three imposes a separate state gift tax, so lifetime gifting is a powerful planning tool throughout the region. The differences appear when an owner dies still holding the business.

Tax	Maryland	Virginia	Washington, D.C.
State gift tax	None	None	None
State estate tax	Yes — $5M exemption (not indexed); up to 16%	None (repealed for deaths after June 30, 2007)	Yes — $4,988,400 exemption (2026, indexed); 11.2%–16%
State inheritance tax	10% on transfers to non-exempt recipients	None	None
Estate tax portability	Yes — up to $10M per couple	Not applicable	No

Maryland

Maryland is the only state in the country that imposes both an estate tax and an inheritance tax. The estate tax exemption is $5 million per person and is not indexed for inflation; lawmakers rejected a 2025 proposal to cut it to $2 million, so it holds at $5 million. The tax tops out at 16% on the amount above the exemption, and portability lets a married couple shield up to $10 million.

The separate 10% inheritance tax turns on who receives the property, not the size of the estate. Transfers to a spouse, child or other lineal descendant, parent, grandparent, sibling, or a child’s spouse are exempt, but a transfer to a niece, nephew, cousin, friend, unrelated business partner, or key employee is taxed at 10%. Any inheritance tax paid is credited against the Maryland estate tax. One caution for business owners who plan to gift: a transfer of a material part of your property made within two years of death, in contemplation of death, can be pulled back into the Maryland inheritance tax — so deathbed transfers do not avoid it.

Virginia

Virginia is the simplest of the three. It has no estate tax and no inheritance tax, and it imposes no gift tax. A Virginia business owner faces only the federal rules, which makes lifetime gifting especially clean in the Commonwealth.

Washington, D.C.

The District has its own estate tax with a 2026 exemption of $4,988,400, indexed annually for inflation. Estates above that amount are taxed at graduated rates from 11.2% up to 16%, and the estate’s representative must file a D-76 estate tax return within 10 months of death. D.C. imposes no inheritance tax and no gift tax. Because the District’s exemption sits well below the $15 million federal figure, a D.C. business owner can owe D.C. estate tax while owing nothing federally.

For owners with property or operations in more than one DMV jurisdiction, these rules can stack — one more reason coordinated estate planning is worth the effort before any transfer.

Strategies to Reduce Gift Tax When Transferring Your Business

Several established strategies help DMV business owners minimize or eliminate transfer-tax liability:

• Use annual exclusions consistently. Gifting $19,000 per recipient each year compounds, moving significant value out of your estate without using any lifetime exemption.

• Leverage valuation discounts. Transferring minority interests in an LLC, family limited partnership, or S corporation can support lack-of-control and lack-of-marketability discounts that reduce the taxable value of each gift.

• Consider irrevocable trusts. Moving business interests into an irrevocable trust can remove them from your taxable estate while letting you control how and when beneficiaries receive them.

• Mind the state layer. For Maryland and D.C. owners, lifetime gifts also shrink the taxable estate below the state threshold; Maryland owners should remember the two-year inheritance-tax lookback on deathbed gifts.

• Get a defensible appraisal. A qualified valuation protects you in an audit and ensures the gift is properly reported under IRS guidance, including Revenue Ruling 59-60.

Plan Your Business Transfer With Confidence

Gifting a business is one of the biggest financial moves an owner makes, and in the DMV the right answer depends as much on where you live as on what your company is worth. Coordinating the 2026 federal exclusion and $15 million lifetime exemption with Maryland’s estate and inheritance taxes or the District’s estate tax takes careful planning. If you are considering a transfer to family, a partner, or a key employee, schedule a consultation with Steve Thienel to build a strategy tailored to your goals and your jurisdiction.