In addition to the more commonly known income and estate taxes, you may be surprised to find that there is also a tax on gifts. The IRS taxes gifts over a certain dollar amount within any given year. In addition to yearly maximums, there are also lifetime maximum amounts, which may present a problem when combined with estate taxes, and the way in which they interact with estate plans.
What Gifts Are Taxable?
The IRS suggests that you consider all gift giving as a taxable event, with limited exclusions.
Gifts that are not taxable include:
- Gifts that are under a certain dollar amount within a given year;
- Tuition or medical expenses, when paid for someone else;
- Gifts to your spouse;
- Gifts to a political organization.
The maximum dollar amount for gifts to not be subject to taxation changes from year to year, and is a something to consider when contemplating a large gift. If your gift falls outside of these exclusions and is taxable, you will have to consider whether the person giving or receiving the gift should pay the gift tax. Additionally, if you are paying the tax, this could be construed as an additional contribution towards the gift.
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