What gifts are not tax-deductible?

Generally, the following gifts are not taxable gifts, gifts that do not exceed the annual calendar year exclusion, tuition or medical expenses paid by someone (educational and medical exclusions). Gifts to your spouse, gifts to a political organization for your use. Gifts to individuals are not tax-deductible. Tax-deductible donations only apply to contributions you make to qualifying organizations.

Unlike donations to charities, donations you make to unqualified individuals or organizations are not eligible for a tax deduction. Gifts of partial ownership interests are not deductible unless they meet the requirements for the charitable remainder or main trusts or the interest is an undivided part of the total donor interest. For example, allowing free use of event space does not generate a charitable deduction for the value of the rent. However, transferring ownership of the space for three months of each year would result in a deduction.

Another common misunderstanding is the treatment of charitable promises. A promise is a promise to make a donation sometime in the future. Gift is not deductible when promised. On the contrary, the gift is only deductible once paid.

This rule states that you can give everything you own to your spouse, whether during his life or death, without incurring gift or inheritance taxes on the value of that property. Donations of property are not considered taxable income to employees as long as they fall within the definition of a “de minimis supplementary benefit”. Therefore, if a taxpayer provides theater tickets to a closed-end corporation for eventual use by any of the corporation's shareholders, and if such tickets are gifts, the gifts will be deemed to have been made indirectly to the person who eventually uses such ticket. The difference between the fair market value of the gift and the amount they paid makes this a taxable gift.

Under certain circumstances, it may be difficult to determine whether it is a donation of goods or a service. Therefore, if a taxpayer makes a donation to a wife who is engaged to her husband in the active conduct of a partnership business, the donation to the wife will not be considered an indirect gift to her husband unless it is intended for his final use or benefit. However, if the wife has a bona fide business relationship with the taxpayer regardless of her relationship with her husband, a gift made to her indirectly to her husband will generally not be considered, unless the gift is intended for her ultimate use or benefit. According to the IRS, a donation is any transfer of property, it can be money, financial assets, or physical property where the donor does not receive full payment in return.

As a parent, grandparent, or other loved one, you may find yourself making great gifts throughout the year, especially if you have children and other young people in your life. The same rules apply to gifts to any other family member of a person who has a business relationship with the taxpayer. Donors can make their lives easier by staying within annual and lifetime thresholds to offer gifts to a person. The IRS gives each person an annual exclusion, which is the amount they can give to another person in a tax year without having to file a gift tax return.

Although circumstances may vary, the usual advice is to stay safe until you reach a substantial donation worth several thousand dollars. As with most tax deductions, keeping track of what you purchased, how much you paid, and the business purpose of the donation is key to ensuring you receive your deduction. Opening a custodial brokerage account for a child in your life can be an effective way to avoid filing a gift tax return later. For example, giving stocks, bonds, or other securities to a loved one could also result in having to pay gift tax.