IRS Tips on Gift Taxes

As the April 15 deadline approaches for income tax return filing, IRS is coming out with many reminder regarding what you are required to file.  One area that often causes confusion is gift taxes.  As we discussed previously, the gift giving rules can be complicated, and the determination as to whether you have to file a gift tax return less than clear. 

The latest IRS Tax Tips newsletter tries to give some guidance.  If, after you review it, you still have questions regarding whether you have to a gift tax return, please contact us.

Here are IRS' Seven Tips to Help You Determine if Your Gift is Taxable:

1.    Nontaxable Gifts.  The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:

  • Gifts that do not exceed the annual exclusion for the calendar year,
  • Tuition or medical expenses you paid directly to a medical or educational institution for someone,
  • Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
  • Gifts to a political organization for its use, and
  • Gifts to charities.

2.    Annual Exclusion.  Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2014 and 2015, the annual exclusion is $14,000.

3.    No Tax on Recipient.  Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.

4.    Gifts Not Deductible.  Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5.    Forgiven and Certain Loans.  The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.

6.    Gift-Splitting.  You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.

7.    Filing Requirement.  You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:

  • You gave gifts to at least one person (other than your spouse) that amount to more   than the annual exclusion for the year.
  • You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
  • You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
  • You gave your spouse an interest in property that will terminate due to a future event.

For more information, see Publication 559, Survivors, Executors, and Administrators. You can view, download and print tax products on IRS.gov/forms anytime.

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Categories: Estate Planning, Gifts, IRS, Taxes

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Norman Handler started his legal career with the IRS, auditing estate tax returns and, in its National Office, developing estate tax policy. He moved into private practice, first as an associate and later as a partner in a large Montgomery County law…

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Marc S. Levine has been practicing law since 1992, all with Handler & Levine, LLC, and its predecessor firms.  Marc regularly assists individuals and families in preparing their estate plans, including drafting their wills, revocable trusts, tru…

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