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December 19th, 2022
Perhaps your end-of-the-year plans include gifting a partridge in a pear tree and the rest of the presents listed in the carol The Twelve Days of Christmas. In 2022, this will run you $197,071.09, an increase of 9.8% from last year.
Or perhaps your end-of-the-year plans include other transfers to an individual. When that transfer is a true gift, for which the person does not pay full consideration, the gift tax may come into effect. Here is a reminder of some basic gift rules.
For individual income tax purposes, outright gifts (as distinguished from charitable contributions) are neither deductible by the donor nor taxable to the recipient. Further, for gift tax purposes, the donor does not actually pay gift taxes until accumulated lifetime taxable gifts exceed $12.92 million in 2023 ($12.06 million in 2022). As a general rule, gift tax returns are only required when completed gifts exceed the annual exclusion ($16,000 in 2022 and $17,000 in 2023; double if married) to any one individual during the calendar year. A gift is not completed until the donor loses all control over the property gifted.
The person giving the gift, not the recipient, is responsible for any applicable taxes. However, there are certain circumstances when the donee may pay the taxes. For example, if the donor does not pay applicable gift tax, the IRS may come after the recipient for the taxes owed.
Taxpayers making a gratuitous transfer of assets during the calendar year will need to file a gift tax return to report the transfer unless the gifts are:
Any gift of a future interest requires the filing of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The gift of a future interest conveys property to a recipient, but defers their right to use, possess, enjoy, or receive income from it is until a future date.
If a return must be filed, the following should be kept in mind by the person preparing the return.
If the only gifts made during the year are charitable donations, the individual doesn’t need to file a return as long as their entire interest was transferred to the charity (i.e., if only a partial interest was transferred of the interest was transferred to someone other than a charity, Form 709 should be filed and all gifts should be reported.
Donations to a GoFundMe account are not tax deductible. It is admirable and selfless to contribute to a family suffering a loss or to help with a neighbor’s medical bills. No matter how commendable the act is however, if the donation is not to a qualified charity, there is no associated tax deduction. Contributions of this manner are considered personal gifts.
From all of us at Tax School, we wish you a very happy gift-giving season and we look forward to serving you in the New Year!
By Kelly Golish, CPA
University of Illinois Tax School
Assistant Director, Tax Materials
IRS Pub. 559
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University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.
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