The Internal Revenue Service defines gifts as cash or assets given to individuals or businesses. For tax purposes, the grantor is responsible for the taxes. The person or the organization that receives it isn’t responsible for the taxes. That said, if you’re on the giving end, the tax implications of gifting money or property mean you have the tax burden of that.
What gifts aren’t taxable?
The gifts may be exempt from taxes in some cases, but as a general rule, they are taxable on the donor’s end. A taxpayer may not pay taxes on the money gifted, but what it was spent for must meet certain criteria. For tax purposes, gifts aren’t taxable.
- Gifts used for tuition expenses
- Gifts used for medical expenses
- Gifts to spouse
- Gifts to a political organization
Along with the above, the gifts that don’t exceed the annual exclusion and to qualifying charities are deductible from the value of the gift.
Are gifts deductible?
Whether it’s money, property, or an asset, the gifts made aren’t deductible as they don’t ordinarily affect federal income tax. Having said that, the value of the gifts isn’t a tax write-off, unless they are charitable contributions.
Read more: Which donations matter for taxes
However, there is an annual exclusion, as mentioned above. The annual exclusion applies to each person or business you gift to – for example, you gave each one of your children $10,000 between 2010 and 2013 and $12,000 between 2014 and 2017. The annual exclusion for the coming four years would be $2,000 more than 2017, and $2,000 more than 2024, and so on. If you’re married and want to give away with your spouse, just double up the numbers.
The bottom line here is that gifts are different than donations made to charitable organizations. You can write them off on your federal income tax return using Schedule A, Itemized Deductions. For you to deduct them, though, you must itemize deductions. That means you can’t take the standard deduction and write off the donations made. But, what you can do is write off $300 in tax donations on Schedule 1, Additional Income and Adjustments to Income, which helps you figure out your adjusted gross income, also known as AGI.