Generally, the following gifts are not taxable gifts, gifts that do not exceed the annual calendar year exclusion, medical or tuition expenses paid by someone (educational and medical exclusions). Gifts to your spouse, gifts to a political organization for your use. The assets you receive as a gift or inheritance are generally not federally taxable income. However, if the assets later produce income (they may earn interest or dividends, or you collect rent), that income is likely to be taxable.
IRS Publication 525 contains the details. In addition, some states have inheritance taxes. Most estate planners expect that the lifetime exemption that applies in a year when a donation is made will determine whether it is tax-free or not. Wealth taxes should not be increased if the lifetime exemption is lower when the estate is processed than when you made the donations.
The federal gift tax is part of what is called the unified federal gift and inheritance tax. Gift tax applies to lifetime gifts; inheritance tax applies to assets. The idea is that whether you give away assets while you are alive or leave them at your death, they are taxed in the same way, with the same rate. If there were no gift tax, anyone could completely avoid wealth tax by giving everything away just before death.
An important component of estate planning is making arrangements to pay any gift tax that the IRS may levy on cash or assets it transfers or bequeaths to others. Since the tax burden in these situations falls on the person receiving the gift, rather than on the person providing it. Therefore, failure to adequately account for your responsibility to the government could affect your assets in unforeseen ways. To help you better understand gift tax, our accountants are analyzing what you need to know to avoid mistakes and prevent the IRS from receiving a sizeable share.
Not only do you not need to report them to the IRS to apply for gift tax, but any donations to a qualifying charity can be deducted from the total amount you donated. Remember, these are just general guidelines that may or may not apply to your own situation. For more information on tax planning, contact our CPAs in Raleigh today to schedule an appointment by calling us at 919-420-0092 or completing our contact form. Focusing on accounting services for small businesses in the Raleigh area and the personal and business tax needs of homeowners.
The gift tax return is due on April 15 of the year following the year in which the donation was made, when required. To be tax-free, educational gifts must pay the direct costs of tuition and not items such as books, supplies, food, housing, or other charges. However, although gifts to your spouse are exempt, gifts to your children, grandchildren, other family members or friends are not. The Internal Revenue Code (IRC) considers a gift to be any property that is transferred to a beneficiary other than the spouse without cash or other monetary value received in return and when no exclusion applies.
So you don't have to worry about paying the gift tax on, say, a sweater you bought for your nephew for Christmas. You can get around the gift tax by contributing to someone's 529 college savings plan with a lump sum and then distributing it over five years for tax purposes. If you sell property or heirlooms to your child for fair market value, you don't have to file a gift tax return. On a gift tax return, you report the fair market value of the gift on the date of the transfer, your tax base (as a donor) and the identity of the recipient.
However, if your daughter was 17 years old, support payments would be considered part of your legal obligation to support her and therefore would not be considered gifts. You can even give certain higher-value gifts because they are exceptions to the usual rules. There is no limit to the number of tax-free gifts that can be made for qualified educational or medical purposes. In addition to the property left behind (the estate), the amount of taxable lifetime gifts is included in the total that may be subject to wealth tax.
This could apply to parents giving money to their children, donating property such as a house or car, or any other transfer. If a gift is taxable, the person making it, not the recipient, must file a gift tax return and pay any taxes due. . .
