Internal Revenue Code provides various rules about the taxation of gifts so when you are planning a “gift” of money or property to someone-friend ,relatives or even unrelated person , you must know about ” who pays gift tax ?”. In other words, every time the amount or value of gift is above a threshold value , you owe a Gift Tax to federal government. Readers should note that 26 U.S. Code Chapter 12 – GIFT TAX deals with all aspects of gifts and its taxation under Internal Revenue Code. Here are most important points which every tax payers under US tax laws must be aware of :
6 Most Important Points for Gift Tax
- For tax year 2019 , if the gift amount is $ 15,000 per recipient.
- Not only money , but gift in any form is taxable . So, if you give gift of immovable property or shares or stocks , such gifts will be valued on Fair Market Value for the purpose of determination of value of gift and imposing gift tax. Similarly , if you provide loans to someone on a lower than market rate , the subsidy in interest will be regarded as gift to borrower of loan .You owe state a gift tax on the interest forgone. .
- Certain gifts are exempted from gift tax . These are :
- No gift tax if the gift is to spouse who is US citizen.
- No gift tax if the gift is to spouse who is not a US citizen and the annual gift does not exceed $ 147,000 .
- If the educational and medical expense is paid directly to the Institution and not to the person whose behalf payments are being made, then such payments do not come within purview of gift tax.
- If you give gift to qualifying charities, no gift tax is imposed.
- Political donations also does not come within purview of gift tax.
- As business man, you can gift up to $ 25 to an individual employee. You can also gift Signs, racks, and promotional materials displayed on the recipient’s business premises worth $4 or less that have your name clearly and permanently imprinted
- The non-taxable limit of $15,000 is per recipient for the tax year 2019. Thus , if you desire to give 10 persons of $ 15,000 each , you still will not pay any gift tax , But , there is also a lifetime gift tax exemption limit . That is , during your life time , you can only give gifts upto $11.4 million as individual or $22.8 million for married couples for Tax Year 2019. For tax year , the life time gift tax exclusion limit was $11.18 million
- There are two exclusive benefits attached to gifts by married couple. First is that , they can gift without any gift tax liability , upto $ 30,000 per recipient . Second, if one spouse desire to give gift in excess of $ 15,000, he/she can use the limit of gifts attached to his/her spouse. As an example , if Mr X desires to give gift to his sister , say $ 20,000 , he can use his $ 15,000 and $ 5000 from his wife quota.
- Gift Tax return must be filed in gift tax form 709 in following circumstances :
- You are a citizen or resident of the United States and has given gifts beyond annual limits of exclusion
- Each individual is responsible for his or her own Form 709. You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part 1—General Information.
- If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return. Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.