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stuff, as seen on tv, employment, unemployment, ZNZone, ZNZbigcash, ZNZ, Zip Nada Zilch, KMC Carvajal....... Giving gifts throughout the year doesn’t have to be costly at tax time. The current threshold is any gift given to an individual that is $12,000 in fair market value per year. However, if you are married, you and your spouse can consent to gift splitting, thereby qualifying to give up to $24,000 per individual recipient.
This threshold is for taxpayers who are giving the gifts. Any taxpayer who gives gifts to one person that exceeds the $12,000 per year must report the total gifts to the IRS. The person who is receiving the gift, however, does not have to report it to the IRS or pay gift or income tax on its value.
The gifts that qualify for this threshold can include money, real estate, personal property, below market interest loans, and future interests in property.
Although the donor may be required to file and report gifts to individuals in excess of the annual threshold amount (using Form 709), you can avoid a tax liability by using your unified lifetime credit against transfer tax. For Gift Tax returns, the transfer tax unified credit is $345,800 and it is the donor who files the return and pays any tax that may arise from the gift. In other words, any unified credit used against a gift tax in one year reduces the amount of credit that can be used against the gift tax in a later year.
For instance, in the year 2007, a taxpayer gives a nephew a cash gift of $8,000 and then gives their daughter and son $25,000 each. The following would apply for the unified credit:
* The first $12,000 given to one individual in 2007 is not a taxable gift. So the $8,000 given to the nephew and the first $12,000 given to both the son and daughter are not taxable gifts.
* The gift tax on $26,000 (the $13,000 remaining from your gift to the son and the $13,000 remaining from your gift to the daughter) is $5,120 (per the table for computing gift tax). The taxpayer then subtracts the $5,120 from the unified credit of $345,800 for 2007. The unified credit that can be used against the gift tax in a later year is $340,680. No gift tax needs to be paid for 2007. However, Form 709 still has to be filed.
In general, the following gifts are not taxable and do not require the filing of a gift tax return:
* Gifts that do not exceed the annual threshold amount.
* Tuition or medical expenses paid directly to an educational or medical institution on behalf of someone.
* Gifts to your spouse.
* Gifts to a political organization for its use.
* Gifts to charities.
For more information on gift taxes, you can refer to Publication 950, which can be found on www.irs.gov.
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