The first method of tax-free donation is the annual exclusion of gift tax. Upon receipt and verification (including comparing current taxpayer and taxpayer representative records with information on Form 4506-T filed), a copy of the original tax return will be mailed as requested. The only caveat is that any additional gifts for the same recipient will count toward your lifetime limit. The person making the donation will file the gift tax return, if necessary, and will pay any taxes due.
While it is rare to find gift tax, given the exclusions and limits, there are situations where this cost may seem inevitable. Form 4506 has multiple uses and special attention should be paid when completing the form for a gift tax inquiry. Instructions on how to use the Electronic Federal Tax System (EFTPS) can be found in Publication 4990PDF (do not use Publication 4990 for the same-day electronic transfer payment method). Gift tax is discussed much less frequently compared to other common taxes, such as income or sales tax.
If you're not sure if gift tax or estate tax applies to your situation, see Publication 559, Survivors, Executors, and Administrators. Money can be donated for tuition and other eligible expenses, as long as the donor pays the school or university and not the student. If you're tempted to make a big gift for the holidays, consider splitting the gift into two checks. In addition, if you are married, you can split all donations made to others during the year between you and your spouse.
Caring is sharing, but some situations often inadvertently cause the need to file a gift tax return, professionals say. Complete IRS Form 709, U.S. Gift Tax Return (and Generation Skip Transfer), on or before the tax filing deadline. You cannot deduct the value of donations you make (except donations that are deductible charitable contributions).
This method should be reserved for taxpayers who have no record of which tax year (s) a gift tax return was filed. But, if there is a national gift tax, why don't you have to declare your birthday money every year?.