Gift Tax

 Gift Tax


Do you need to pay taxes when you receive a gift or gift is not taxable?

It is interesting to note that gift tax is imposed on the giver unlike any other provisions of the income tax. We are knew very well that taxes are paid by the person who receives the money. However incase gifts, it is opposite. The person who receives gift has no obligation even to report. 

However, the person who gives gift is required to report or file return and pay gift tax in case gift cross a certain threshold. 

The gift that you received is not an income to you, and you may enjoy it in full with out any tax burden. But the giver might required to pay tax in some situations.

Gifts of small amount is not taxed or should be reported. How small? Gift up to $17,000 to a an individual in 2023 if you are single and gift up to $34,000 if you split it between you and your spouse, and there is no obligation to report or pay taxes. 

If you give small gifts, reporting and gift tax can be completely avoided. You can give as many people you want gift of less than the limit and still you do not have to report it to IRS. 

However, if you give more than the limit (which is $17000 in 2023) to a single person you have to file Form 709 to IRS.

Gift is subject to gift tax, however, there is a life time exclusion amount, which is $12.92 million for 2023. What is that mean? It means you can give gift of 12.92million during your life and you are not taxes, but you may need to file gift tax return if you go beyond the annual threshold limit.

You have to file tax return if you give gift of more than $17,000 ($34,000 in case of splitting between spouse) during the year to a single donee, but you may not have to pay gift tax until you go above the life time exclusion limit.

Gift given to spouse is non taxable but interestingly gift given to non-us spouse has a limit. Gift given to non-us spouse is limited to $175,000 a year. Above the limit you need to file gift tax return.

The deadline to file gift tax return is April 15th.

In summary, the following are nontaxable gifts

  • Gifts which do not exceed the annual exclusion
  • Gifts given to charities
  • Gifts to a political organization
  • Tuition or medical expenses written directly to a medical or educational institution
  • Gifts to spouse, if he or she is U.S. citizens only

Comments

  1. Golden Refund Retrievers LLCJuly 30, 2024 at 12:47 AM

    Thanks for sharing this valuable information. It’s really helpful for my current project.

    ReplyDelete

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