Many people give gifts throughout the year, but they don’t realize certain gifts are taxable. On Monday we reviewed keeping your charitable donations organized for next tax season. Today we’ll discuss taxable gifts and what you’ll need to know for next tax season.
What is a Taxable Gift?
What most people don’t realize is that the IRS’ general rule of thumb is ALL gifts are taxable, but there are several exemptions. The primary exemption being, gifts that do not exceed the annual exclusion for the calendar year are not taxable. For 2011 and 2012 the annual exclusion is $13,000. The following items also are not taxable:
- Tuition or medical expenses paid directly to an education institution or a medical institution on behalf of someone else.
- Gifts for your spouse, political organizations, and charity.
Can My Spouse and I Each Make a Gift Up To The Annual Exclusion?
You and your spouse are each able to make a gift up to the annual exclusion without paying the gift tax. So, for 2011 and 2012, you could gift $26,000 to a third party and then each claim half of the amount. You must file Form 709, if you do this.
Most gifts will not be taxable under the IRS’ exclusions, but if you do exceed the limit remember to file Form 709. If you have any questions throughout the year regarding whether a cash or property gift will be taxable, contact your H&S tax professional at 800.924.6891.