Whenever you give a gift of money or property, you might have to pay a gift tax. If you give a gift under $12,000, you are exempt from the current gift tax. If you give a gift over $12,000, you will have to pay the current 18% gift tax rate.
There is also a lifetime gift deduction of $2 million, if you exceed this amount you are subject to a 45% gift tax rate.
Your “gift’ must meet certain Internal Revenue Service regulations. Your “gift” must be given at less than fair market value. If your “gift” is given at fair market value, it will not qualify as an exemption from the gift tax.
You cannot have any sort of control over the item you are giving and you must give it freely and voluntarily. Any money or item you are ordered to turn over by a court of law cannot be considered a “gift.” Services cannot be given as a “gift.”
As long as the money or goods you are giving remain under $12,000 annually, on a per person basis, you do not need to claim anything on your tax return.
There are gifts that the Internal Revenue Service considers tax exempt, no matter what the circumstances, such as, gifts to pay tuition, gifts to pay medical expenses, gifts to your husband or wife, and gifts to a charity.
Tuition payments must be made directly to the institution of learning in order to qualify for exempt status, and cannot be given directly toward the individual or used for supplies and books.
Medical payments must also be made directly to the care facility and not the individual. Such payments cannot be used to cover insured costs or be subject to reimbursement.
Gifts between husbands and wives are unlimited and married couples can gift a combined $24,000 annually as opposed to $12,000.
Gifts to qualify charities are unlimited. Such charities can be, but may not be limited to children’s charities, educational charities, literary charities, scientific charities, and charities for the prevention of cruelty to animals. Check with the current Internal Revenue Service guidelines to be certain that any charities to which you are considering donating are, indeed, tax deductible.
It is recommended that if you are uncertain how any of your gift giving may affect your tax liability status, you consult with an income tax specialist. There are many tax specialists proficient in preparing your income tax return with an eye toward “gift’ giving.