- As of July 2011, you can make an annual gift of $13,000 or less to any person, whether or not he is related to you, without having to pay taxes on it. You may make as many gifts to different people as you would like, as long as no gift to any one person exceeds the $13,000 gift limit. If you exceed the exclusion amount, you must file a gift tax return. The gift tax is imposed on the donor, never the recipient.
- Although you have to file a gift tax return if you give more than $13,000 to any one person in a year, you do not necessarily pay gift tax. Your gift taxes count against your estate tax exclusion, which is $5 million as of July 2011. For example, if you give a gift of $20,000, when you file your gift tax return, the IRS subtracts $7,000 from your estate tax exclusion. You do not pay any tax until you exceed your estate tax exclusion, according to Farmark.com.
- You cannot deduct gifts you make to your children or other relatives from your taxes. Since gifts do not count as income, giving gifts does not affect your tax return. However, if you make a gift to a charity recognized by the IRS, you can deduct it from your taxes as a charitable deduction.
- You can only treat something as a gift if you do not receive goods or services in exchange for the gift. For example, if you give a gift to your grandson, he does not have to claim it as a gift and you do not have to pay taxes on it. However, if you give your grandson $1,000 in exchange for him helping around the house, he must declare it as income.
Gift Tax Exclusion Amount
Filing Gift Tax Return
No Tax Deduction
Consideration
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