The holidays are a few months behind us, but before you know it they’ll be around again. Most of us gave and received gifts as we do every year. What if you had to pay taxes on those gifts you gave?
What is a gift
A gift is considered property given gratuitously to someone else. This could be cash or belongings given to a family member or friend. Does this mean that every time you give a friend some cash or son or daughter the old family car you have to pay taxes to Uncle Sam?
When do I have to file?
If the gift you gave is valued at over $14,000 to a single person for 2014 and 2015, you must file a gift tax return and pay tax on the gift you gave. However, there is a list of exclusions that may apply to your gift situation.
What types of gifts are excluded from taxes?
Below is a short list of exclusions:
• Tuition expenses you pay on someone’s behalf
• Medical expenses paid for someone else
• Gifts to charitable organizations
• Gifts to political organizations
• Gifts to your spouse
Any of the above would exclude you from the requirement to file a gift tax return, even if the value of the gift is above the $14,000 limit (per recipient).
Even gifts that are not covered by the exclusions, and are thus taxable, may not result in a tax liability. This is so becasue a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $5,430,000 (for 2015). However, to the extent you use this credit against a gift tax liability, it reduces (or eliminates) the credit available for use against the federal estate tax at your death.
As other special occasions come up, you may be looking for ways to put a smile on your spouse’s face. If you are married, don’t worry. Gifts between spouses are not taxable. If you are not married, but still want to give your special someone that sports car or perfect gift of which they’ve been dreaming, you might want to think about the taxes you will be paying to make your honey happy.
If you have any questions on gift taxes please feel free to contact us.