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Gift Giving Can Be Quite Taxing

If you sent a gift to someone or some organization, you may wonder if Uncle Sam wants in on your good will…with his “fair share” of tax. Of course he does!

But who pays: the giver or recipient? When do you need to file a gift tax return?

The IRS offers the following guidelines to ensure you understand how and when to pay “your Uncle:”

  • The general rule states all gifts are taxable, but as with any rule, exceptions exist:
    • Gifts to recognized charitable organizations are not taxable.
    • No tax is due on gifts to political organizations.
    • You’re free to give your spouse all the gifts you wish.
    • Payments to medical or educational institutions for someone else’s healthcare or tuition expenses are not taxable.
  • Gifts to other people may be subject to the gift tax if they exceed the annual exclusion amount. For 2016, the annual exclusion amount is $14,000. If you’re married, you’re each entitled to the $14,000 exclusion, so together you could give $28,000 to a third party. Note: any time you split a gift, you and your spouse must both file a gift tax return, even if you don’t owe any tax
  • You, the donor, must pay any tax owed on your gift. If you don’t pay, the tax due may become the recipient’s responsibility. (Not the best follow-up gift!)
  • Unless you’re giving to a charitable organization, you can’t take a deduction on your tax return.
  • Did you forgive debt or make a no- or very low-interest loan? Gift tax may also apply here.
  • If you give a gift to someone who can’t use it now, but from which he or she will receive income later, you must file a gift tax return.
  • If you give your spouse a gift that terminates at the time of a future event, you must file a gift tax return.

If you’re required to file a gift tax return, use Form 709.  Requesting an extension of time to file your federal tax return will also grant you an extension of time to file your gift tax return…but not to pay any tax due.

Need help determining if you owe tax from gift giving? The experienced Patrick & Robinson CPAs team can assist you with this and other tax accounting issues: or (904) 396-5400.

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