If we look at the definition of a gift from the point of view of the IRS, it is a transfer of property, cash, real estate, stock or any other value, from one person to another, without receiving something of equal value in return. This seems like a relatively rational definition of a gift, but gifts can be taxed, so you don’t have to worry either(!) You have such a vast pocket of exclusion, actually, such that you don’t have to ever pay taxes on gifts. Yet, experts who offer income tax services suggest knowing the maximum limit for gifts is a good idea.
When is a gift taxed?
A gift is taxed when you cross annual exclusions and lifetime limits. The annual exclusion for a gift per individual is $15,000, and the lifetime limit of gifts is $11.7 million for the tax year 2021. If you have exceeded both of these limits, you have to pay taxes for the amount of the gifts over that exclusion.
Take a look at an example to understand this concept better: You are a father who has already used the lifetime exclusion limit by making big gifts like property transfers to your (lucky) kids. Now, you have made a gift of $50,000 to someone. For the going financial year, you have to deduce your annual $15,000 limit and pay the tax on the remaining $35,000.
How is a gift taxed?
Like income taxes, there are tax brackets for gifts. The tax you need to pay on a gift is calculated based on the bracket it falls under. The tax rate for gifts can vary from 18% to 40%.
If you are an artist and receive big gifts from family or friends, then you can get a tax preparation guide for artists to help you here.
When should you call a tax professional?
Experts suggest that when gift taxes get complex, it is a good idea to hire a tax professional. Or, when a receiver wants to pay taxes for their gifts, then it is advised to hire a professional accountant.
Agro Accounting CPA 