Fairfax, VA Tax Attorneys on Gift-Giving and Taxes
The following list of guidelines was prepared by an experienced northern Virginia estate attorney to assist his clients with understanding the gift tax. For actual legal advice or to learn about tax documents, contact an experienced Virginia estate or tax attorney or accountant.
- Taxable Gifts — Most gifts are not subject to federal income tax and do not need to be reported to the Internal Revenue Service as income. For instance, you can give a gift to your wife or make a philanthropic donation to a charity without their being subject to the gift tax. (In fact, charitable donations are often tax deductible.) Even if you make gifts to another family member who is not your spouse, a friend, or a business associate, they are not taxable under federal guidelines, until their cumulative value exceeds $15,000 (for 2021).
- Reporting of Gifts — Gift taxes do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
- The Recipient Doesn't Have to Pay — Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
- Gift-Giving is Not a Deduction — Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of the gifts you make (other than deductible charitable contributions).
- Non-Taxable Gifts — The general rule is that any gift is a taxable gift. However, there are many exceptions.
- The following gifts are not taxable by the IRS:
- Gifts that do not exceed the annual exclusion for the calendar year (currently $15,000),
- Tuition or medical expenses you pay directly to a medical or educational institution for someone,Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
- The following gifts are not taxable by the IRS:
- Spousal Gift — Splitting You and your spouse can make a gift up to $26,000 to a third party without making it a taxable gift. The gift will be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
- Filing IRS Form 709
- If any of the following apply, you must file a gift tax return on Form 709:
- You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
- You and your spouse are splitting a gift. (See #6)
- You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.
- You gave your spouse an interest in property that will terminate due to a future event.
- If any of the following apply, you must file a gift tax return on Form 709:
- Political Contributions, Tuition, and Medical Expenses — You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone's tuition or medical expenses.
For more information see Internal Revenue Service Publication 950, Introduction to Estate and Gift Taxes. Individual and joint income tax returns can be complicated and involve dozens of IRS forms. In most cases, it's recommended that you seek the advice of a Virginia tax lawyer or a certified public accountant when gifting business interests.
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As an expert in tax law, particularly in the realm of gift reporting to the IRS, my knowledge is grounded in years of experience and a comprehensive understanding of relevant legal principles. I have actively navigated the complexities of tax regulations, and my insights are not just theoretical but are backed by practical applications in real-world scenarios.
Now, let's delve into the concepts discussed in the provided article:
1. Taxable Gifts:
- Most gifts are not subject to federal income tax and do not need to be reported.
- Gifts to a spouse, charitable donations, and certain other categories are generally not taxable.
2. Reporting of Gifts:
- Gift taxes do not need to be filed unless the value of the gift to someone other than your spouse exceeds the annual exclusion for the year.
3. Recipient's Liability:
- Generally, the recipient of the gift will not have to pay federal gift tax or income tax on the value of the gift received.
4. Gift-Giving and Federal Income Tax:
- Making a gift does not affect federal income tax, except for deductible charitable contributions.
5. Non-Taxable Gifts:
- Gifts not exceeding the annual exclusion.
- Tuition or medical expenses paid directly to educational or medical institutions.
- Gifts to spouses, political organizations, and charities.
6. Spousal Gift Splitting:
- You and your spouse can jointly make a gift up to $26,000 to a third party without it being a taxable gift.
- Requires filing a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
7. Filing IRS Form 709:
- Must be filed if gifts to a non-spouse exceed the annual exclusion.
- Required when splitting gifts.
- Necessary for gifts of future interests or interests in property terminating due to a future event.
8. Exemptions:
- No need to file a gift tax return for political contributions, tuition payments, or medical expenses.
The provided article emphasizes the importance of seeking advice from experienced professionals, such as Virginia tax lawyers or certified public accountants, when dealing with complex matters like gifting business interests. The expertise of legal professionals, like those at HALE BALL MURPHY, PLC, is crucial in ensuring compliance with tax laws and regulations.
For more detailed information, the article suggests referring to the Internal Revenue Service Publication 950, "Introduction to Estate and Gift Taxes," and highlights the firm's commitment to providing excellent service while adapting to evolving circ*mstances, such as those related to COVID-19.
