There are many common questions concerning the gift tax imposed by the IRS. Furthermore, many people wonder about the annual gift tax exclusion and whether or not they can use this to their advantage.
To better understand the finer details of the gift tax, let’s take a closer look at some of the most common questions and answers:
Who is responsible for paying the gift tax? The donor is responsible for paying this tax. While this is almost always the case, there are special situations in which the person receiving the money can agree to pay the tax.
What is considered a gift? This is where most people get confused, as they don’t understand what is a gift and what is not.
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.
What can be excluded from gifts? This is where you begin to realize that there are some exclusions associated with the annual gift tax. Generally speaking, any gift is taxable. That being said, there are exceptions as outlined by the IRS.
The following gift types are not taxable:
- Gifts that do not exceed the annual exclusion for the given calendar year
- Gifts to your spouse
- Tuition expenses paid for another party
- Medical expenses paid for another party
- Any gift made to a political organization
What is the annual gift tax exclusion? Now that you know that there are situations in which a gift is not taxable, you need to learn more about the exclusion. For the year 2013, the annual exclusion is set at $14,000. This may not sound like a lot, but keep in mind that this number is much higher than it has been in the past. For example, the exclusion was set at $11,000 for the years 2002 through 2005.
If you still have questions about the annual gift tax exclusion, including whether you are required by the IRS to pay tax on a gift, it is best to speak with a qualified tax professional or experienced attorney. This will ensure that both you and the recipient of the gift are complying with the rules and regulations set forth by the IRS.
- How Do I Protect My Pet in My Estate Plan? - July 1, 2022
- Charitable Planning in Times of Crisis - November 30, 2021
- Holiday Scams That Target Seniors and How to Avoid Becoming a Victim - November 22, 2021