|
Gifts and the IRS
Larry Denton
The gift tax applies to he giving of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may also be making a gift.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.
Generally, the following gifts are not considered to be taxable: Gifts that are not more than the annual exclusion for the calendar year; tuition or medical expenses you pay directly to a medical or educational institution for someone; gifts to your spouse; gifts to a political organization for its use, and gifts to charities.
A separate annual exclusion applies to each person to whom you make a gift. For 2005, the annual exclusion is $11,000. Therefore, you generally can give up to $11,000 each to any number of people in 2005 and none of the gifts will be taxable.
If you are married, both you and your spouse can separately give up to $11,000 to the same person in 2005 without making a taxable gift.
Example 1. In 2005, you give your niece a cash gift of $8,000. It is your only gift to her this year. The gift is not a taxable gift because it is not more than the $11,000 annual exclusion.
Example 2. You pay the $15,000 college tuition of your friend. Because the payment qualifies for the educational exclusion, the gift is not a taxable gift.
Example 3. In 2005, you give $25,000 to your 25-year-old daughter. The first $11,000 of your gift is not subject to the gift tax because of the annual exclusion. The remaining $14,000 is a taxable gift.
For additional information and examples please refer to IRS Form #709 and its instructions about taxable gifts.
Generally speaking, you must file a gift tax return on Form 709 if any of the following apply: you gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year; you and your spouse are splitting a gift; you gave someone (other than your spouse) a gift that he or she cannot actually possess, enjoy, or receive income from until some time in the future; or you gave your spouse an interest in property that will be ended by some future event.
You do not have to file a gift tax return to report gifts to (or for the use of) political organizations and gifts made by paying someone's tuition or medical expenses.
For more information about the need to file a gift tax return, you should look at IRS Form 709 and its instructions.
Additional Tax Articles
A Guide to Free Online Tax Filing
Whoever said "there is no such thing as a free lunch" may have been right about food. However, for millions of eligible taxpayers, with an Adjusted Gross Income of $50,000 or less, there is Free File....
What Records Should I Keep?
You must keep records so that you can prepare a complete and accurate income tax return. The law does not require any special form of records. However, you should keep all receipts, canceled checks or...
Advantages And Disadvantages Of Using Tax Software
Each year millions of Americans have their taxes prepared by a professional tax preparer. Having tax returned professionally prepared reduces the likelihood of errors being reported on a tax return; however,...
How And Where To Find Valuable Tax Information
Taxpayers have two options when filing a federal or state income tax return. Taxpayers can have their tax returns professionally prepared or they can prepare their own taxes. Whatever tax preparation option...
|
