Since we’re in the season of giving and we so love this season, I thought this would be a great subject to tackle!
What Is A Gift Tax?
A gift tax is the tax on money or property that one living person gives to another. Items received upon the death of another are considered separately under the inheritance tax. Many gifts are not subject to taxation because of exemptions given in tax laws.
The gift tax is a tax on the transfer of money or property to another person while getting nothing (or less than full value) in return.
You can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it
The Annual Exclusion
The annual exclusion is per recipient; it isn’t the sum of all your gifts. That means, for example, that you can give $15,000 to your cousin, another $15,000 to a friend, another $15,000 to the neighbor, and so on all in the same year without having to file a gift tax return
Gifts between spouses are unlimited and generally don’t trigger a gift tax return. Gifts to nonprofits are charitable donations, not gifts.
And here’s another bonus if you’re married: You and your spouse are each entitled to a $15,000 annual exclusion. Technically, you could give your son and his spouse $60,000 toward that house—$15,000 to each of them from both you and your spouse. That’s a lot of cash!
There is also a lifetime gift tax exemption to consider. As you might imagine, most people don’t even come close to the lifetime exemption when giving gifts. If you were wondering… This limit is $11.8 million. If you would like to hit that limit, I am open for gifts! However, if you’ve given a whole lot of gifts in your lifetime and have already exceeded the current lifetime exemption amount, you’ll have to pay the gift tax on any amounts you give beyond the annual exclusion.
What To Do
You must report gifts over the annual exclusion to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This records how much you’ve gone over the annual exemption each year—the amounts that count against your lifetime exemption.
I know that it sounds bad that there could be taxes on gifts, but there are reasons why there could be taxes. Without the gift tax, large estates could be reduced by simply giving the money away prior to death, and thus escape any potential estate tax. Don’t let the gift tax stop you from giving cheerfully this season or any other season.