How to Avoid The Gift Tax

You can cut down what you owe in inheritance taxes.

If you give valuable gifts to another person, you may have to pay taxes on value of the gift. There are ways in which you can avoid the gift tax and still give to those you love.

Instructions

1. Understand the gift tax laws. You can give a gift valued up to $12,000 to an individual with no tax consequences at time of publication. However, if the gift is worth more than $12,000, you will have to pay taxes on the full value of the gift. The recipient of the gift, no matter how large the gift is, does not have to pay taxes when he receives the gift.

2. Understand the exceptions to the $12,000 rule. You can avoid the gift tax if your gift is used for tuition or medical expenses that you pay directly to an educational or medical institution. You also do not have to pay taxes on gifts to your spouse, gifts to a political organization, or gifts to charities.

3. Avoid the gift tax by splitting the gift. You and your spouse can each giving up to the $12,000 limit to the same person. You can even give up to the $12,000 limit to each a husband and a wife. Effectively, you could give a gift valued at up to $48,000 to a married couple if you are also married because you can split the gift between you and your spouse, and the recipient and his spouse.

Tips & Warnings

• Use IRS Publication 950, Introduction to Estate and Gift Taxes

• Use IRS Form 709 to report any gifts over $12,000 that do not meet the exceptions

• Consult a tax adviser if you are not sure whether you should report a gift

References

• IRS.gov: Introduction to Inheritance and Gift Taxes
• IRS.gov: United States Gift (and Generation-Skipping Transfer) Tax Return