Gift taxes and exclusions

Gifts of any sizable amount have tax consequences to the giver, as well as the receiver. Each of us is considered, by the tax folks, to have a yearly dollar amount, above which tax must be paid on a gift that is bestowed upon anyone. This amount is known as the Annual Gift Tax Exclusion. It is the same for everyone, regardless of income or financial situation, but it has increased over the past twenty years:

  • 1997-2001: $10,000 ¬†
  • 2002-2005: $11,000
  • 2006-2008: $12,000
  • 2009-2012: $13,000
  • 2013-2015: $14,000

This list also shows that when the exclusion is increased, it is always increased by $1000.

The way the exclusion is applied, any one of us may give away to any number of other people, in one calendar year, the entire exclusion amount without incurring any tax liability. Thus, one would be able to send a check for $4000 to one’s son in college in February, another check for $4000 for his birthday in September (how generous!) and buy him a 6000 car for the holidays. That totals $14,000 and would not even need to be reported to the IRS.

And, one could do the same, in the same year, for your daughter, your girl friend, and the mailman if you like. Still no tax liability as long as the exclusion is not surpassed in gifts to any one individual.

However, your son’s new car (okay, it was a used car) needs new tires in December. You buy them for him, a good deal, all four for only $1000. You now need to report the taxable (as it exceeds the yearly exclusion of $14,000 to one person) gift of the thousand dollar tires to the Internal Revenue Service on Form 709,¬†United States Gift (and Generation-Skipping Transfer) Tax Return. This needs to be sent in by April 15 of the year after the taxable gift was given.

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