One type of tax that is often overlooked by many people is the gift tax. For some, it might be preposterous to even think about paying taxes for something that is given to someone in goodwill without expecting anything in return. But this is required by law, instructing everyone to report any present that exceeds the annual gift tax exclusion (making it a taxable gift) to the IRS and filing the appropriate form.
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The IRS classifies gifting as essentially a turning over of property without getting anything in return or receiving just a portion of the original value of the gift instead of the real amount. It is wise to consult one’s estate planning lawyer if there is confusion in the determination of taxable gifts.
The one who gives the gift is obligated by law to pay the tax. The receiver, though, may voluntarily pay the tax (or a part of it) on behalf of the giver if the latter goes over the threshold of their annual gift tax exclusion.
There are of course notable exceptions to gift taxes other than the annual gift tax exclusion limit set by the IRS. Gifts to a legal spouse are not taxable whatever the amount. The money one spends to pay for someone’s medical expenses, or tuition fees are also not taxable. Gifts to political organizations for its designated use are also included in this list.
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An attorney exclusively practicing in the areas of estate planning and elder law, John Peck of Legacy Lawyers has been working in eastern North Carolina for over 35 years. He received his undergraduate degree in Business and Economics from Belmont Abbey College in 1972 and his Juris Doctorate from Campbell University School of Law in 1980. To learn more about him, visit this website.
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