Do You Have to Pay Income Tax on Gifts?

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Income tax must be paid on gifts, such as a car won in a raffle, but the tax can be paid either by the donor or by the recipient. Get information on taxable gifts with information from a portfolio manager in this free video on finance.

Part of the Video Series: Credits, Stocks & Pension
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Video Transcript

Are you thinking about giving a gift to somebody or are you about to receive one? Hi this is Roger Groh with Groh Asset Management. Today we're here to talk about income tax and who is responsible for paying the tax on gifts. Generally, it's the donor and if you give something to someone and don't get back something in equal value, then that difference is going to be subject to a gift tax. Now there are limitations in terms of minimum amounts that you have to be above to do that, but the idea is been to eliminate transfers of wealth and avoid a state tax and other issues like that. Now in some situations the person receiving the gift ahead of time can agree to pay the tax before receiving the gift. You cut that deal directly with the Internal Revenue Service. An example might be win a car in a TV show, well you're paying the tax. You can always elect not to take the gift to avoid the tax. So that's an example. If you'd like more information, go to irs.gov, that's the website of the Internal Revenue Service and do a search for gift tax. They have a whole section that tells you who is eligible, exempt and specific ways that you can gift legally while minimizing your taxes.

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