Surprise! Your parents have given you a large payment! It might be enough to feed you for a day, or it could be an early inheritance.
Are you concerned that paying income tax on your present might be complicated?
How much is the annual gift tax?
To begin, the overall amount of gifts must be signed before the IRS takes notice.
In a calendar year, $15,000 or less in a gift does not go on your tax form.
The IRS considers a gift to be given half from each contributor if it is made from the joint property. With no risk, parents may provide $30,000 as a present for their children.
A couple may also gift up to $15,000 to each son-in-law or daughter-in-law.
For example, a married couple with two children who earn $100,000 per year may contribute up to $60,000 in gifts to each other. The yearly limit for one family to another is $60,000 ($15,000 X 4 = $60,000). Splitting these presents up is an excellent method of avoiding paying gift tax.
Gifts that don’t count
No matter the amount, any money transfers are never considered to be gifts. It’s not a gift if:
A spouse who is a U.S. citizen is eligible. Spouses who are not US citizens are subject to special conditions.
For medical costs or tuition, the money is sent directly to an educational or healthcare institution. (It does not have to be a kid; it can be someone who is not related.)
For most people, the gift tax isn’t a concern.
If necessary, the giver files a gift tax return and pays any taxes due. If someone gives you more than the yearly gift tax exemption amount (currently $15,000), they must file a gift tax form. Despite this, they do not owe any gift taxes.
For example, suppose you receive $20,000 in one year and you and the donor are single. The giver must file a gift tax return, which reflects an excess gift of $5,000 (($20,000 – $15,000) = $5,000).
The yearly aggregate amount individuals give to others each year over the annual exemption builds up and reaches the lifetime gift tax exclusion amount after a few years. This lifetime exemption protects you from having to pay gift taxes on future gifts.
A gift tax is not charged until a person has given away more than $11,580,000 in their lifetime ($5.49 million in 2017).
Is it ever necessary for the gift recipient to pay gift tax?
If the donor does not pay his or her taxes, the IRS may collect them from you.
Most individuals who can afford to make substantial gifts that are subject to gift taxes may also afford the tax on those donations.