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Gift Tax: What is it?

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Gift Tax: What is it?

Post by MichaelG on Mon Aug 15, 2011 9:12 am

Here is a little Q&A on the Gift Tax that may answer some common questions.

Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may be responsible to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

1 Gifts that are not more than the annual exclusion for the calendar year.
2 Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3 Gifts to your spouse.
4 Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). If you are not sure whether the gift tax or the estate tax applies to your situation, refer to IRS Publication 950, Introduction to Estate and Gift Taxes or visit with your tax professional.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $13,000 the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $26,000.

I hope this answers the common asked questions and helps. If there are other questions please feel free to ask.

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Re: Gift Tax: What is it?

Post by Boopski on Sat Aug 20, 2011 8:31 am

Question: If I buy my adult child a new car can I get around the gift tax by putting the car in both my name and my child's name (I understand the drawback to having my name on the car also is in the event of an accident I can be sued along with whoever is driving the vehicle) then at a later (six months or so) date, sign the car over into only my child's name.

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Re: Gift Tax: What is it?

Post by MichaelG on Sat Aug 20, 2011 9:48 am

As long as you are both owners of the car, there is no gift to that person. They are using a vehicle that you purchased together. Check the fair market value of the car when you sign it over to them, if it is below $13,000 then there is no gift tax. I would contact DMV for any sales tax implications at the time you sign it over fully to them.

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