It’s easy to think of gifts as tax-free. In polite society, we don’t like to discuss the value of gifts. Don’t they just appear magically and bring happiness?
Not quite. All gifts, of course, do have a value, and depending on what that is, they may taxable.
The majority of gifts are not subject to the gift tax. Also, there is usually no tax for gifts to your spouse or a charity.
Most often, gifts are not taxable because they fall within the annual exclusion, which is $13,000 for 2011 and 2012.
You and your spouse can make a gift of up to $26,000 to a third party without paying a federal gift tax because it is considered that half of the gift is from you and half is from your spouse.
Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
And you generally don’t have to worry about any tax burdens being placed on the recipient of the gift. Most commonly, they do not have to pay federal gift tax or income tax on the value of the gift received.
Gifts do not ordinarily affect your federal income tax. Unless a gift is a charitable contribution, you cannot deduct the value of gifts you give.
To make things simple, here’s a quick summary of gifts that are not taxable:
- Gifts that do not exceed the annual exclusion for the calendar year
- Tuition or medical expenses paid directly to a medical or education institution on someone else’s behalf
- Gifts to your spouse
- Gifts to a political organization for its use
- Gifts to charities
You do have to file a gift tax return on Form 709 if any of the following apply:
- You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
- You and your spouse are splitting a gift.
- You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy or receive income from until some time in the future.
- You gave your spouse an interest in property that will terminate due to a future event
If you’d like to speak with a Beaton Accounting tax representative for professional advice on your taxes, call us today for a FREE consultation: 631-921-6894.
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