How to Gift Money to Family Members Tax Free

Though it's nice to help family members in financial need, it can be shocking to discover that gifting money can trigger a gift tax from the IRS. Luckily, there are simple ways to avoid this tax.

Difficulty: Easy

Instructions

1. Familiarize yourself with the law. There is usually a pre-determined amount that you are legally allowed in tax-free monetary gifts to a family member every year, although that figure can change. For example, in 2008, the annual limit was $12,000 per individual; in 2009 it was $13,000. If you and your spouse are giving a joint gift, this number typically doubles.

2. Plan in advance so that the total amount that you gift to a family member does not exceed the legal limit. Recognize that the IRS tallies up all monetary gifts that you make to an individual during the calendar year.

3. Consider using the lifetime gift exemption, which provides you one opportunity to give $1 million in tax-free monetary gifts to as many different recipients as you like during one calendar year.

4. Understand gift tax restrictions. There are numerous circumstances that are exempt from the gift tax. For example, you can give your spouse a monetary gift of any value without triggering the gift tax as long as your spouse is a U.S. citizen.

Tips & Warnings

• If there are special circumstances related to your monetary gift, speak to an accountant or tax professional for advice.
• There are circumstances aside from offering a monetary gift to a family member that may trigger a gift tax. For example, the government may view the discounted sale of a house or other asset to a family member as a gift; you may have to pay a gift tax if the discount exceeds the annual limit.

References

• Turbo Tax: Gift Tax
• SmartMoney.com: When to file gift tax forms

Resources

• IRS.gov: Form 709 2008
• IRS.gov: Gift Tax FAQs