Generosity is a beautiful quality and perhaps the best way to tell someone how much you love and value them.
According to the website of the Internal Revenue Service, $38.5 billion was transferred from donors to gift recipients in 2018.
In most cases, you’re free to give away money and property to other people without filing a respective tax return to the IRS. All you need to do is make sure your giving does not exceed a certain dollar amount, and thus is non-taxable.
And even when you go above the limit, you might still avoid paying any gift taxes under certain circumstances.
Let’s sit down and sort things out.
What’s considered a gift?
Note that not every gift you make is a gift from the IRS’ point of view. For instance, tuition and medical expenses aren’t considered gifts—together with gifts to qualified charities and political organizations. All these fall under the category of exclusions.
Gifts to your spouse also don’t count as gifts—as long as your spouse is a U.S. citizen. If not, you’re allowed to give your noncitizen spouse up to $155,000 in 2019.
On the other hand, if you lend money to a friend—and forgive the debt afterwards—the IRS may actually consider such a loan a gift.
The term “gift” includes any transfer of money or property from one person to another in which the donor receives nothing in return, or if the amount of money received is less than the gift’s fair market value—an estimate of the market value of the property/object on the open market.
Minimum threshold is a gift of at least $15,000 made in a single calendar year by an individual, and $30,000 from a couple making a gift using money from joint resources.
Exemptions, exceptions and exclusions
- The annual gift tax exclusion determines how much you can give away without being taxed. In 2019, the annual exclusion amount will remain at present level which is $15,000 (or $30,000 If you and your spouse decide to make a joint gift).
- In order to avoid taxation, make sure that the total value of all the gifts you made during the course of your entire life doesn’t exceed the lifetime exemption amount ($11,400,000 in 2019).
- Using up your exclusions means that you have to pay the gift tax. The current federal gift tax rates range from 18% to 40%.
Remember that it’s always the donor who’s responsible for paying the gift tax, not the donee. The person receiving the gift doesn’t have to report anything! This should be taken into account every time you’re planning a gift that exceeds the exclusion amount.
How to organize your gift tax return
To report your taxable gifts, use a 5-page document called Form 709. Use the latest fillable Form 709 template to complete and send out your return online.
Typically, Form 709 must be submitted before April 15 of the following year. Check out the detailed instructions on how to correctly fill out Form 709. Learn about deadlines and see other important recommendations on paying taxes in 2019.
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