People exchange gifts every day, and gifts of money are one of the favorite options that get doled out. The giver likes it because it’s more efficient and less stressful than hunting for the perfect give, and the receiver enjoys it because the can purchase whatever they want. And who doesn’t like receiving money?
Of course, gifts of cash may have tax implications, since the Internal Revenue Service is always looking for their fair share. When tax time rolls around, questions abound over what is taxable, and what can be a write-off. Denver tax preparation services can help clear the air with some of these questions, particularly when it comes to whether or not you’ll have to report a gift as income.
What is Gift Tax?
Gift tax is a federal tax on transfers of money or property given to other people while getting nothing in return. It’s rare to owe a gift tax, as the IRS commonly isn’t concerned unless it hits a certain standard. That federal number was for gifts exceeding $16,000 in 2022, and bumps up to $17,000 in 2023.Along with those that don’t meet the annual exclusion amount, there are a few specific situations that are excluded from being considered gifts.
Educational and medical dollars are not subject to the gift tax. This includes any tuition or medical expenses you pay for someone. Gifts to your spouse are also generally not subject to gift tax, and neither are any gifts to a political organization for its use. Gifts to qualifying charities are deductible from the value of the gifts made. The gift tax can range from 18 to 40 percent, and the giver usually pays the tax.
What is Counted as a Gift?
More than just cash can be subject to the gift tax, so be careful when giving or receiving anything expensive. Some common things can trigger the need to file a gift tax return. If you drop $50,000 to pay for a child’s wedding, that could be counted as a gift. Also, giving interest-free loans of large sums of money to your children or other family members can be considered gifts if you later decide they don’t have to repay you.
Other subtle changes can fall into this category, as well. If you have an aging parent or grandparent that adds you to a bank account, that can be considered a gift because you now have free access to that money. This can include purchasing cars that aren’t in your name, or even giving a large sum of money into a grandchild’s college savings account.
Knowing what is considered a gift can get confusing, but there is plenty of help available through the right Denver tax preparation services. For more information on the tax ramifications surrounding a gift of money, or for any other general questions about your tax return, reach out to the experts at Denver Tax Advisor today.