Gift Taxes-Giving Isn't Free
Gifts can be made to anyone that you choose, but if they are significant the Internal Revenue Service will want a piece of them.
The IRS defines a gift as: the giving of property (including money,) or the use of or income from property, without expecting to receive something of 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.
So you make a gift, is it taxable or not? And who pays the tax if it is? Second question first, the person making the gift is responsible for paying any taxes that are owed. Whether it is taxable or not depends on the size of the gift.
Each person is allowed to make up to $13,000 per year in gifts to each individual without any tax liability. Married couples may elect to split gifts, so the gift limit would be $26,000. If the gift is less than $13,000 no gift tax return need be filed. If the gift is over $13,000 and the couple elects to split, then a return must be filed by each showing the election to split the gift.
What if you want to make a larger gift? Larger gifts can be made tax free as well. Each individual is allowed a $345,000 unified credit against gift tax. This translates to $1,000,000 in lifetime gifts per donor (tax-payer.) A gift tax return must be filed. The credit is cumulative for life.
Once the unified credit of $1,000,000 is exhausted any gifts over the annual exclusion amount of $13,000 will be subject to taxation.
Gifts are a good way to distribute assets during your lifetime. It is important that you are aware of the tax ramifications of gifting.
The IRS defines a gift as: the giving of property (including money,) or the use of or income from property, without expecting to receive something of 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.
So you make a gift, is it taxable or not? And who pays the tax if it is? Second question first, the person making the gift is responsible for paying any taxes that are owed. Whether it is taxable or not depends on the size of the gift.
Each person is allowed to make up to $13,000 per year in gifts to each individual without any tax liability. Married couples may elect to split gifts, so the gift limit would be $26,000. If the gift is less than $13,000 no gift tax return need be filed. If the gift is over $13,000 and the couple elects to split, then a return must be filed by each showing the election to split the gift.
What if you want to make a larger gift? Larger gifts can be made tax free as well. Each individual is allowed a $345,000 unified credit against gift tax. This translates to $1,000,000 in lifetime gifts per donor (tax-payer.) A gift tax return must be filed. The credit is cumulative for life.
Once the unified credit of $1,000,000 is exhausted any gifts over the annual exclusion amount of $13,000 will be subject to taxation.
Gifts are a good way to distribute assets during your lifetime. It is important that you are aware of the tax ramifications of gifting.