This is the time of year many individuals consider making gifts to their families and/or charitable institutions. Many times this prompts questions regarding taxes associated with gifting.
The Internal Revenue Service explains:
Gift tax "is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return. The tax applies whether the donor intends the transfer to be a gift or not.
The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money) or the use of, or income from the property, without expecting to receive something or at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest-loan, you may be making a gift."
There are some exceptions to the rule. Generally, the following gifts are not considered taxable gifts:
- Gifts that are not more than the annual exclusion for the calendar year. ($15,000 in 2019 and 2020)
- Tuition or medical expenses you pay for someone.
- Gifts to your spouse.
- 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.
The annual exclusion applies to gifts to each donee. In other words, if you give a gift of $15,000 in 2020, to one of your children you can also give each of your other children an individual gift of $15,000. The annual exclusion will apply to each gift given to each child. A husband and wife together can give $30,000 to each donee without gift tax consequences.
Each year a gift is made, a gift tax return should be completed and filed with the Internal Revenue Service. The form is due by the tax deadline of the following year in which the gift is made.
If you should have any questions, please consult your attorney, accountant, or you may call the Internal Revenue Service at their toll-free number, (800) 829-1040.