Income Tax Preparation, Accounting and Payroll service by Don Brooks & Associates - Don Brooks Associates, Inc.

Know what gifts are taxable

When an individual receives a gift, whether cash or property, the gift is generally not taxable to that individual. Sometimes, however, the gift giver may incur a gift tax liability when making certain gifts. If you make a gift to family members or other individuals, you can give $12,000 or less in value to a single individual during the year and you do not have to report the gift or file a gift tax return. The so-called "annual exclusion" of $12,000 simply means that gifts during the year to an individual that are equal to or below this exclusion amount are not considered reportable gifts.

Certain gifts for medical expenses and educational expenses do not count toward the $12,000 exclusion and allow you to maximize your gifts for the year. For medical expenses, amounts you pay directly to the person or organization providing the medical service or care are excluded from the gift tax. To qualify for the exclusion, the medical expenses must meet the requirements for deductibility and generally include expenses paid for diagnosis, cure, mitigation, treatment, or prevention of disease. It also includes amounts paid for medical insurance.

With regard to educational expenses, similar rules apply. Transfers made to qualifying educational institutions for tuition are not subject to the gift tax and do not count toward the $12,000 annual exclusion. The exclusion applies to tuition for full or part-time students paid directly to the educational institution. Amounts for expenses such as books, room, board, or other supplies are not eligible for the exclusion.

Gifts made during the year that exceed the annual exclusion are considered "taxable" gifts and are required to be reported on a gift tax return. You are allowed a lifetime exclusion of $1 million in taxable gifts before any out-of-pocket gift tax is actually due.

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