Do I Have to Pay Income Taxes on Gift Money?
You may want to give your children their inheritance now so you can watch them enjoy it. However, if you give anybody a gift of more than a certain amount ($13,000 in 2011), you must pay taxes on the gift when you file your income taxes. The Internal Revenue Service considers any amount of money and property to be a gift if you give it to somebody without getting anything tangible from him in return.
Other People Are Reading
-
Annual Exclusion
-
You do not have to pay taxes on gifts that are less than the annual exclusion amount. In 2011, the annual exclusion amount is $13,000. Thus, you do not have to pay gift taxes if you give a gift to an individual of less than $13,000. The gift exclusion is per person, not total; if you have three children, you can give each child up to $13,000 without having to pay taxes on the gift.
Exempt Gifts
-
You do not have to pay gift tax on gifts that you give to your spouse or gifts that you give to political organizations for their use. In addition, you can pay as much as you wish for someone else's tuition or educational expenses without having to pay gift tax. These rules apply even if you exceed the annual exclusion rate. For example, you can give $15,000 to your spouse or pay tuition of $30,000 for your grandchild.
-
Married Couples
-
If you and your spouse want to give a joint gift to somebody, your exclusion amount equals both of your individual exclusion amounts added together. Thus, in 2011, married couples can give gifts of up to $26,000 without paying taxes on them because each member of the couple has an exclusion of $13,000. This rule applies only to married couples, not to friends or other persons who wish to give gifts together.
Considerations
-
Many older people give gifts to their heirs rather than leaving money or property to them after their death. You should consider the tax advantages of doing so. If you give property to an heir while you are still alive, the property is considered to be worth the fair market value of the property at the time you give it, and your heir will have to pay appreciation taxes on it every year. When your heir inherits property after your death, its worth will be the fair market value of the property on the day of inheritance. Your heir will not have to pay appreciation taxes and may be able to exclude gains from selling the property.
-
