Taxpayers are often confused about when a gift is taxable or nontaxable. We thought it would be a good time to review some basic information on the annual gift tax exclusion.
Most gifts are not subject to the gift tax. For example, there is usually no tax when you make a gift to your spouse or a charity. If you make a gift to someone else, the gift tax usually does not apply until the cumulative value of the gifts you give to that person during the year exceeds the annual gift tax exclusion. In 2013, the annual federal gift tax exclusion amount is $14,000. A federal gift tax return generally only has to be filed if you give someone (other than your spouse or a qualifying charity) money or property worth more than the exclusion amount.
If federal gift tax is due, it typically will be paid by the person making the gift. The person receiving the gift does not pay federal gift tax or federal income tax on the value of the gift received. However, other than gifts that are deductible charitable contributions, the person making the gift will not be able to deduct the value of the gift on his or her federal tax return.
Thus far, we have indicated that gifts (a) for less than the annual exclusion during the calendar year, (b) made to your spouse, or (c) made to a qualifying charity, generally are not subject to the federal gift tax. In addition to these provisions, tuition or medical expenses you pay directly to an educational or medical institution for someone else are not subject to federal gift tax, either. However, you cannot first give the money to an individual for the purpose of paying the end recipient. To avoid federal gift tax liability, the money must be paid directly to the institution.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.