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Posted By Jim On 07/06/2010 @ 7:20 am In Personal Finance,Taxes | 17 Comments
Did you know that if you get someone a gift, you are responsible for paying income tax on that gift?
Yep, it’s known as the gift tax. Fortunately, there’s an annual exclusion involved. So you won’t be tagged for that gift card you bought your co-worker to commemorate his screaming arrival into this world.
But for the affluent, and those who are worried about the estate tax, the gift tax is very relevant. See, when you give someone a gift that exceeds the annual limit ($13,000 this year), you are required to pay income tax on those gifts on your tax return. You could also arrange it so that the recipient pays the taxes, but that requires special tax assistance.
The limits for an annual gift are:
The limit applies to each donor-donee pair. So if you are married and have two kids, you can give each $13,000. Your spouse can also give each child $13,000. This effectively transfers $26,000 of wealth from the parents to each child, which is important for estate planning purposes as the gift isn’t taxed. If you want, you can certainly send some money my way as a gift and you will not taxed on that either!
There are exclusions to the gift tax and they include tuition or medical expenses you pay for someone else, gifts to your spouse, and gifts to a political organization for its own use.
If you give property, the annual gift limits still apply but you will be required to supply appraisals and documents supporting the transfer of assets. It gets a little hairy but Form 709 United States Gift Tax Return  is the form you’ll need and Publication 950 Introduction to Estate and Gift Taxes  should be your guide on the matter.
Finally, your state may have it’s own gift tax rules so check with a local CPA for your state’s rules.
Now… who has some extra cash they don’t need?
(Photo: jillclardy )
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 Form 709 United States Gift Tax Return: http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
 Publication 950 Introduction to Estate and Gift Taxes: http://www.irs.gov/publications/p950/index.html
 jillclardy: http://www.flickr.com/photos/jillclardy/2524677256/sizes/m/
Thank you for reading!