Most of us don't really think about tax implications of gifts we want to give. However, the IRS has rules about how much money we can gift each year without reporting it, and how much we can gift over our lifetimes without owing gift tax. Let's review some of the highlights:
If you want to give someone a gift, you can give $13,000 in 2010 without having to file a gift tax return. If you and your legal spouse want to gift together, you can "gift split" and give $13,000 each to a person. (As an odd note, if you choose to split your gifts for one person, you must split all your gifts to everyone all year.) This allows you to give away $26,000 a year to someone (like a child or grandchild) and not have to report your gift. Many people use this as a chance to lower the value of an estate and potential liability for estate tax.
What if you give more than $13,000? Well, then you file a gift tax return. The value of your gifts begins to accumulate over time, and when you have eventually gifted over $1,000,000, you must pay gift tax. Remember that gift tax is always paid by the gifter, not the recipient. You don't owe any gift tax until your lifetime gifting exceeds a million dollars.
If you want more information about this, check out IRS Publication 950, available at www.irs.gov.
Be prosperous!
Peggy
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