The laws on gift taxes are complicated due to the fact that technically, any gift is taxable. However, certain exemptions exist to this rule along with specific limits that have been set in place by the government.
What is Included as a Gift and Therefore, Subject to the Gift Tax?
Anything of value that you give to another individual without receiving anything in exchange can be considered a gift. This can include money and property.
Who is Responsible to Pay the Gift Tax?
The gift giver is responsible to pay any gift tax if it is due. Additionally, the gift recipient does not have to claim the value of his gift as income. In certain circumstances, the recipient may agree to pay the tax instead of the donor. However, this is a special circumstance that requires the expertise of a tax service professional.
Exemptions from the Gift Tax
In general, it is possible to provide certain gifts without having to owe any gift tax. Donations to charities and political organizations are not subject to the gift tax, and therefore, they are not included when calculating the total value of the gifts that you have made for the year. Medical expenses and tuition that you pay for someone else’s benefit are tax exempt, along with gifts to your spouse and gifts that do not go over the annual exclusion limit for any single tax year.
Are Gifts Tax Deductible?
Donations to charitable organizations are tax deductible and can be entered on your income tax return. However, gifting to your heirs, estate, friends, etc are is not tax exempt.
Annual Exclusion Limits for Gifts
Applicable exclusion limits are in place for the calculation of the gift tax. The annual exclusion applies to each Donne (recipient) rather than being a cumulative total for all recipients. Currently, the exclusion limit is $13,000. Property held jointly by two spouses is calculated a bit differently. Since each spouse is entitled to gift $13,000, the exclusion amount for the gifting of joint property would currently be $26,000.
Additionally, the annual exclusion applies each year, allowing you to gift the same Donne in multiple years.
The determination of any gift tax that is due is calculated on the amount of the gift that exceeds the annual limit. Therefore, if you provide a gift of $15,000 to your child in 2012, you will be taxed only on the amount that exceeds the annual exclusion limit of $13,000 or $2,000 ($15,000 – $13,000 = $2,000).
Additional Resources on the Gift Tax
For a fuller review of the gift tax, please contact your iQTAXX tax service representative. You can also read IRS Publication 950, Introduction to Estate and Gift Tax.