How to Determine if Your Monetary Gift is Taxable

With the holidays fast approaching, gift-giving is on the minds of every child and adult alike. Some monetary gifts, however, may end up costing you a significant amount more because the federal government (and some states) impose a gift tax.

The IRS defines a gift as any money, property, or use of property given to someone else without the expectation of receiving something of value in exchange. When determining whether your monetary gift is taxable, the dollar amount matters: Individuals can gift up to $14,000 annually tax-free, or $5.49 million in their lifetimes. For married couples, the concept of gift-splitting allows for spouses to give $28,000 tax-free. In addition to the amount of the monetary gift, the recipient of the gift will impact whether the gift is taxable: For instance, a donation to a charity is tax-free.

Which monetary gifts are tax-free?

Generally, all gifts, whether money, property, or use of property, are taxable unless one of the following exceptions applies:

  • The gift is valued at less than the annual exclusion amount of $14,000, or is a gift given by you and your spouse not exceeding $28,000;
  • The gift was tuition or medical expenses you paid directly to a medical or educational institution on behalf of someone else;
  • The gift was given to your spouse;
  • The gift was given to a political organization; or
  • The gift was given to a charity.

When do I file a gift tax return?

The gift tax is paid by the person giving the gift, not the person receiving it, and not all gifts that are given require additional filing. The IRS requires you to file Form 709 “United States Gift (and Generation-Skipping Transfer) Tax Return” in the following circumstances:

  • The gift was given to someone other than your spouse and exceeds the annual exclusion amount;
  • Any gift that is being given by yourself and your spouse (gift-splitting), even if half of the amount is less than the annual exclusion amount;
  • The gift is of a future interest that the recipient cannot possess or enjoy, or will receive income from later;
  • The gift is an interest in property that was given to your spouse that will terminate because of a future event.

Get state & IRS tax help from the specialists at Key Tax Group

When you are considering giving a monetary gift, or in tax debt and facing a bank levy or wage garnishment, an experienced tax professional can help you reach a tax resolution or determine whether your gift is subject to state or federal taxes. For more information, contact our office today for a free initial consultation.