Lately, I have been getting a lot of questions on gift taxes e. g. the limit on gifts before the tax filing is required, who pays the taxes, when are the taxes paid and how to avoid it, so I decided to summarize the most commonly asked questions about the gift taxes.
For U.S. income tax purposes, most gifts are excluded from the gross income of the recipient. On the other hand, the donor (person giving the gift) cannot claim the gift amount as an expense in his/her tax return either i.e. the gifts don’t produce deductions for the donor or income for the recipient and most of the time there’s no gift tax, either. But if you give more than the annual exclusion amount ($14,000 for 2017 & $15,000 for 2018) to one person other than your spouse in a single year, you’ll have a reporting obligation i.e. even though you may not have a (gift) tax liability, you still have the filing obligation. The gift tax is generally imposed on the donor; the person receiving the gift does not have to pay this tax.
The rules let you give a substantial amount during your lifetime without ever paying a gift tax. For 2018 the amount is $11.2 M. A married couple can pool their individual gift exemptions to make gifts worth up to $30,000 per recipient per year without incurring any gift tax.
The following gifts are not taxable:
- Gifts that are not more than the annual exclusion for the calendar year (i.e. under $15K for
- Gifts to a political organization for its use
- Gifts to charities
- Gifts to one's (US Citizen) spouse
- Tuition or medical expenses one pays directly to a medical or educational institution for someone. The donor must pay the expense directly. If donor writes a check to done and done then pays the expense, the gift may be subject to tax.
When you must file gift tax return
- You exceed the $15,000 annual gift to any one person (other than your spouse)
- You consent to split a gift
- You give a gift of future interest (even to your spouse): A common example of a gift of a future interest is real estate gifts
The gift tax filing (and tax that may be owed) are due on the same date as the Individual income tax filing date following the year in which the taxable gift was made. Also, keep in mind that if you are married, even if you file taxes jointly you and your spouse will need to fill out separate gift tax forms. The laws on Estate and Gift Taxes are considered to be some of the most complicated in the Internal Revenue Code. I suggest you plan ahead and do necessarily due diligence before getting into such a transaction. For additional information, please check: