Making a gift doesn't necessarily affect your federal income tax. You cannot deduct the value of donations you make (unless they are deductible charitable contributions). The gift tax is the property transfer tax, which means that the tax applies regardless of whether the donor intends the transfer to be a gift or not. The general rule is that any gift is a taxable gift.
However, there are many exceptions to this rule. Usually, the following gifts are not taxable. Not all donations are taxable, even if they meet those criteria. Whether you have to pay taxes on your donation depends on its value.
Yes, under the right circumstances, Christmas gifts count as taxable income. Holidays are still a wonderful time of year, but 30 percent of that magic of the season could belong to Uncle Sam. The line where donations are converted into income, especially from an employer, can be confusing. Non-monetary gifts and awards given to employees may be considered tax-free only if the gift or award can be characterized as a “supplemental de minimis benefit” under Section 132 of the Code, or qualifies as an “employee achievement award” under Section 274 (j) of the Code.
The purpose of the gift tax is to prevent people from simply giving up all their possessions to the beneficiaries before their death as a way to avoid wealth tax. When it comes to holiday gifts and prizes between those ranks, employers should use their judgment to decide whether the gift or award is excludable from employee income as a de minimis additional benefit. No gift tax is due, but the amount of a donation is subtracted from the exemption each time you do so. The general rule of taxation under Section 61 of the Internal Revenue Code is that all forms of compensation are subject to income tax, unless specifically excluded by the tax code.
If you had not received the gift except for your employment (for example, an Amazon gift card given to all staff), it is counted as income. As the holiday gift season intensifies, you may wonder if gift tax applies to the holiday gifts you give or receive. Tax code, Treasury regulations and other IRS guidelines do not set a specific dollar limit for de minimis donations. The tax implications of holiday gifts are easy to address and employers must ensure that such remuneration is taken into account for the purposes of year-end W-2 reporting and payroll period.
However, Christmas gifts or prizes valued in large dollar amounts (tablets and flat screen televisions, for example) will never qualify as additional de minimis benefits. Some common examples of gifts with future interest are reserving a lifetime real estate or financing a trust. These can be cash gifts or items that would otherwise cost a lot of money, such as a new car or house. The IRS will provide a copy of a gift tax return when Form 4506, Request for Copy of Tax Return, is successfully completed and submitted with justification and payment.
The guidance states that the gift of Christmas hams by an employer to employees qualifies as excludable de minimis additional benefits; however, the amount of gift certificates that an employer gives to employees to buy the hams themselves is taxable income. Finally, people who make donations as part of their overall estate and financial plan often hire the services of lawyers and CPA, EA and other professionals. .
