IRS Rules on Gifts to Children

Taxable gifts

Gifts are usually taxable when given to individuals. Under the Internal Revenue Code, however, some gifts do not have tax implications. In fact, gifts can be structured to avoid tax liability. This is especially important when giving a gift to a child.

Gifts That Are Not Taxed

Gifts that are less than the annual exclusion, tuition or medical expenses, gifts to a spouse and gifts to a political organization are not taxed. When giving a gift to a child, the most important of these exclusions is tuition and medical expenses. In order for the gift to be excluded, the taxpayer must pay the tuition and medical expenses directly to the organization, not to the child.

Annual Exclusion

Gift exclusions in 2002 through 2005 were $11,000. From 2006 to 2008, the annual gift exclusion was $12,000. For 2009, the gift exclusion was $13,000.

Deductibility

Generally, a person giving a gift to a child cannot deduct the gift from their income taxes. Only gift donations to the appropriate organizations are deductible.

References

• IRS: Frequently Asked Questions on Gift Taxes
• IRS: Publication 950 (12/2009)