Usually, the following gifts are not taxable. Gifts that don't exceed the annual calendar year exclusion. Tuition or medical expenses you pay for someone (educational and medical exclusions). Gift tax is a tax on the transfer of property from one person to another without receiving anything, or less than the full value, in return.
The tax applies regardless of whether the donor intends the transfer to be a gift or not. A gift is anything you give without receiving a fair market value in return. The Internal Revenue Service (IRS) defines fair market value as what would be paid for an item or asset if neither the buyer nor the seller were under any coercion to complete the transaction. For tax purposes, a donation is a transfer of property for less than its full value.
In other words, if you don't get your money back, at least not in full, it's a gift. The IRS defines a gift as “any transfer to a person, either directly or indirectly, in which full consideration is not received in return. In other words, if you write a large check, give away investments, or give a car to someone other than your spouse or dependent, you have made a donation. The IRS has a gift tax limit, both on how much you can donate each year and on what you can donate throughout your lifetime.
If you exceed those limits, you will have to pay a tax on the number of gifts that exceed the limit. This tax is the gift tax. The IRS considers a gift to be money or items of value given to another person without receiving anything of value in return. A donation is not considered income for federal tax purposes.
Some money transfers are never considered taxable gifts. These types of transfers are tax-free, regardless of the amount. You can even make certain gifts of more significant value because they are exceptions to the usual rules. You can donate to some tax-exempt organizations, as well as others listed in Section 501 of the tax code.
So if you don't give anything away during your lifetime, then you have all your lifetime exclusion to use against your estate when you die. The beneficiary will only pay the gift tax in special circumstances in which it has decided to pay it by agreement with the donor. If you want to calculate taxable income from donations that exceed the annual exclusion limit, the following table breaks down the rate you will have to pay based on the value of the gift. In addition to these gifts that are not taxable, there are some transactions that are not considered gifts and therefore are definitely not taxable gifts.
The person providing the gift may owe tax on the gift and cannot deduct the value of the gift on their federal income tax returns. Even if you have donated an amount that exceeds the year limit, that doesn't necessarily mean you owe gift tax. 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. You can also pay for transportation and accommodation associated with your beneficiary receiving medical care, but certain rules apply, so talk to a tax professional.
The gift tax return is due on April 15 of the year following the year in which the donation was made when required. Remember, with TurboTax, we'll ask you simple questions about your life and help you complete all the correct tax forms. Similarly, if you pay a friend or family member to go on a trip with you, the gift tax is not activated either. Fair market value is usually the appraised value of a gift or a value comparable to other similar items sold at the same time and under the same conditions.