I’m frequently asked about the income tax consequences of someone who receives a gift. The simple answer is that a true gift is never subject to income tax, and only under specific conditions (outside of the scope of this article) is it subject to a reporting requirement by the recipient. The twist on gifting is that the person making the gift, not receiving it, may have to report it to the IRS.
f you are a US citizen or resident alien who gifted cash or other property to someone during 2012 with a value of more than $13,000, you were required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return by April 15, 2013 or to extend that return until October 15, 2013. If you missed that filing date and didn’t extend the return, the best action is to file it as soon as possible. The good news is that gifts are not taxed until they exceed a lifetime exemption. In 2012, that exemption was $5,125,000, so if on December 31, 2012, you hadn’t made cumulative gifts of more than $5,125,000, there would be no gift tax and no late filing penalties and/or interest. In 2013, the exemption increased to $5,250,000, and the annual gift tax exclusion went from $13,000 to $14,000. The annual exemption is per recipient, so you can gift any people $13,000 each and still not have to file a gift tax return.
There are exceptions to the filing requirement. Usually, spouses can gift each other unlimited amounts and not have to file a gift tax return; however, if the gift is to a spouse who is not a U.S. citizen, the annual exclusion is $139,000. Other exceptions are gifts to pay tuition, cover medical expenses, make political contributions, and donate to charity. If your gift is to pay for tuition or medical expenses, be sure to make the check out to the institution and not to the individual. Otherwise, the exemption won’t work.
Gifting is an excellent way of letting someone know you care, but follow the rules and avoid IRS problems by filing your gift tax return promptly. The tax professionals at LSL CPAS and Business Advisors are experts in gifting. Please call if you have specific questions and would like a consultation.
