Question

What Is the Gift Tax and Who Pays It?

Answer

Generally, paying gift tax is not an issue for the person receiving the gift. The giver, however, will generally only file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $15,000 per person for 2018. The giver may also not owe gift tax due to their lifetime exemption.

Gift Tax Exceptions

what is the gift taxSome monetary exchanges are not subject to the gift tax no matter their amount. Included in those exceptions are monetary exchanges between a husband and a wife if both spouses are U.S. citizens and money paid directly to an educational or medical institution to cover tuition or medical expenses. Those direct gifts made to educational and/or medical institutions need not be made on behalf of persons to whom the giver is related for the giver to avoid tax ramifications.

Do I Have to Pay Taxes on A Gift to Multiple People?

If you are making a gift to more than one person, the exclusion amount will apply to each person individually. For example, if you have four children and you give $15,000 to each one in 2018, your gifts totaling $60,000 ($15,000 x 4) will not be subject to gift taxes. Additionally, if you are married, you can split the gift between you and your spouse. That means you could give $15,000 and your spouse could give another $15,000 to each child without exceeding the annual exclusion. However, spouses who split gifts may still need to file gift tax returns.

Lifetime Gift Tax Exemption

In addition to the annual gift tax exclusion, gift givers should be aware of the lifetime exemption amount. As the name implies, this amount refers to the amount an individual can give during their entire lifetime. Here’s how it works. If, during any year, your gift is above the annual threshold, you must report it as a taxable gift on IRS Form 709. In that case, you would apply the gift to your lifetime exclusion from federal estate tax.

Let’s look at an example. On February 20, 2018, John gives his son $20,000, which is $5,000 more than the annual exclusion for 2018. John files Form 709United States Gift (and Generation-Skipping Transfer) Tax Return, for the 2018 tax year and reports a taxable gift of $5,000. He determines his tax of $900 using the Table for Computing Gift Tax in the Form 709 Instructions. However, John does not need to send a tax payment because he uses a portion of his lifetime exemption. Going forward, his maximum lifetime exemption must be reduced by the amount he used on his 2018 tax return.

Gift Tax Questions

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