In few countries, large enough gift are given by people or they transfer their property to others while they are still living, they may require to pay a gift tax. For instance, in the US, the Internal Revenue Service (IRS) has made specific rules about the amount that a person can give to someone else without incurring this tax. In IRS publications there are also guidelines for what is considered a gift, and for the amount of tax that will be incurred which will be based on the value of the gift.
IRS Tax Law
Where a gift tax rules are applied, a person might be allowed to give gifts of a certain amount before that the beneficiary has to pay a gift tax. For instance In IRS law, without paying a gift tax you can give an individual a gift of about $13,000 US Dollars (USD) per year. A husband and wife may both give the same person this gift, which will be a total of $26,000 USD per year. This amount could be changed by IRS, so it is advisable that you check tax law for current allowable amounts.
Gifts on which Tax is not applied
Usually the person that is giving the gift pays the tax, though there are certain circumstances where the person who is receiving the gift can arrange to pay the tax instead.
There are also some gifts on which taxes are not allowed. Currently the payment of tuition or medical expenses are not considered by IRS, provided that these are made directly to the facility charging the money, as subject to a gift tax.
Other gifts that are excluded from gift tax payment are gifts to political organizations and gifts to a spouse. When a gift is given to charity, then the giver may not only be exempt from paying a gift tax, but they may also be able to take a tax deduction, provided that the charity is legal and recognized.
Trust instead of Gifts
Gift taxes are avoided by some people by creating trusts instead, which may lower the amount of taxes owed on any gifts made. There is a variation in the amount owed when transferring large amounts of money or property, and if it is a sizable gift, then it is recommended that you discuss the issue of gift taxes or trusts with an knowledgeable tax attorney, financial planner or accountant.
There is a common misconception that the person receiving the gift must pay the gift tax. When a gift is sold, such as property, some taxes may be owed, specifically if the property has been in possession for a few years. When the gift is very large, it is a good idea that you do a research tax obligations regarding it, now or in the future. Despite of all the facts in most of the cases, it’s the donor who pays the initial taxes on the gift.
