Federal Gift Tax for Starters
Giving small gifts to loved ones, close friends, and work colleagues is something memorable and free. But when you are giving huge sums of money in the name of gift-giving, you need to know that there are certain limits that apply and certain gifts can be liable to a federal gift tax. There are specific laws governing a federal gift tax and it can be one of the most complicated tax law that was ever-written in the Internal Revenue Code. For this reason, a lawyer, certified public accountant ( CPA ), or an estate tax professional is needed when you are considering giving huge sums of gifts.
If you are the donor, you are normally responsible in paying the federal gift tax, unless special circumstances state that the receiver of your gifts ( donee ) will be willing to pay the gift tax instead. For the latter, you need legal assistance to help you write this special type of arrangement. Remember that under the Internal Revenue Code, any transfer to an individual, either directly or indirectly, where nothing is received in return – is considered as a gift.
What Kind of Gifts are Not Subject to A Federal Gift Tax?
According to the Internal Revenue Service or IRS, this can be:
1.Gifts that doesn’t exceed the yearly limit ( $ 13,000 on or after January 1, 2009 ) set for the calendar year.
2.Educational or medical fees you pay for another person.
3.Gifts you give to your spouse.
4.Gifts given to any political organization for their use.
5.Gifts to charitable institutions.
Important Things You Need to Remember About Federal Gift Tax:
1. Your gifts don’t affect your federal income tax and you cannot declare them as tax deductibles.
2. You and your spouse can jointly give away gifts that are not subject to tax, if they don’t exceed $26,000 ( effective on or after January 1, 2009 ).
3. You need to keep copies of appraisals, transfer of gifts documents, and documentation on any gift items that are included in the transfer.
4. If you have exceeded the allowable yearly gift amount limit, you may file a federal gift tax with an IRS Form 709 ( http://www.irs.gov/pub/irs-pdf/f709.pdf ). Even if you’re making a simple transfer with your family, if it’s over the yearly limit, don’t forget to file this form ( even when you don’t consider it as a gift ).
5. Note that you won’t actually owe a federal gift tax unless all of your gifts exceed the $1 million dollar lifetime gift tax exemption. Even when there is no tax due, file a Form 709 to avoid conflict with the IRS in the near future.
6. If you really have a gift with a huge monetary value, it is smart to hire several competent lawyers, CPAs, or enrolled agents to help you with the federal gift tax law. If you are passing on an heirloom, find a reputable appraiser like Christie’s or Sotheby’s to help you make an estimate amount of your priceless antiques and collectibles.
7. Keep in mind that if you plan to sell a gift that is given to you, you will have to pay federal income tax on the gains of your sales.
In the end, these gifts of cash, assets, or investments will offer a win-win situation for you and the recipients of your gifts. Gift-giving is truly a warm and positive experience to look forward to and the last thing you need when you’re feeling generous is to face the tax consequences of your actions. Yet, it is better to comply with the federal law than be sorry later. Also, take note that when you sell something that is less than the value of the thing you have sold, whether it comes with an interest or a lower interest rate, you are considered to be making a gift.
You can file your federal gift tax credit return on April 15 of the consecutive year when the gift is given and you may mail it to: Internal Revenue Service, Cincinnati, OH 45999. If you are sending your form through FedEx, you may send to: Internal Revenue Service, 201 W. Rivercenter Blvd, Covington, KY 41011. For questions, you may get in touch with the IRS toll-free hotlines: 1-800-829-1040 ( for individuals ), or 1-800-829-4933 ( for business ). Email queries are not entertained as of this moment.
RESOURCES:
IRS.gov. “ Frequently Asked Questions on Gift Taxes. “ October 2008.
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
IRS.gov. “ Filing Estate and Gift Tax Returns. “ September 2008.
http://www.irs.gov/businesses/small/article/0,,id=164875,00.html
IRS Small Business Resource Guide. “ Other Tax Issues of Interest: Gift Tax. “ 2009.
http://www.sbrg.irs.gov/sections/section8/gifttax1.htm
AXA Equitable. “ Give a Gift with Meaning and Worth. “ 1999 – 2009.
http://www.axa-equitable.com/plan/estate/gift-tax.html
