The first method of tax-free donation is the annual exclusion of gift tax. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable.
Making a gift or leaving your estate to your heirs usually doesn't affect your federal income tax. So why not give all your assets to your heirs before you die and avoid any estate taxes that might be levied? Smart, but the government is ahead of you. The IRS requires you to file Form 709 if you make a large gift that exceeds the annual exclusion amount during the tax year. A special rule allows donors to distribute one-time gifts on five-year gift tax returns to preserve their lifetime gift exclusion.
Form 4506, Request for Copy of Tax Return PDF, is used to request a copy of previously filed tax returns with all attachments. The only caveat is that any additional gifts for the same recipient will count toward your lifetime limit. If you exceed those limits, you will have to pay a tax on the number of gifts that exceed the limit. For help with gift tax or any other personal finance issues you may have, consider working with a financial advisor.
While these are the general rules regarding gift taxes, tax liability may vary depending on individual circumstances. The IRS considers a gift to be money or items of value given to another person without receiving anything of value in return. Citizens, all money paid directly to an educational institution to cover tuition, or all money paid directly to a medical institution to cover medical expenses. Even if you have donated an amount that exceeds the year limit, that doesn't necessarily mean you owe gift tax.
The IRS defines a gift as “any transfer to a person, either directly or indirectly, in which full consideration is not received in return. The following gifts are considered taxable gifts when they exceed the annual gift exclusion amount.
