Holidays season has just passed and you’ve probably gave away a lot of presents. Have you ever wondered whether these gifts are subject to any tax?
What is a gift?
A gift is made when the value of the property transferred (directly or indirectly) exceeds the value of consideration received in return. Thus, if you’re giving without getting something in return, or if the return you get is less than the full value of the gift, you have given a gift and may be subject to gift tax.
What is the value of the gift?
Generally, a gift is valued at its “fair market value” on the day of giving the gift. This would be the price where a willing buyer and a willing seller, both with reasonable knowledge, agree to exchange the property for. In most cases, the giver is the one who is responsible for paying the gift tax. However, if the giver did not pay the tax, the receiver would be liable instead.
Are there any exclusions, exemptions or deductions?
There are several types of gift tax exclusions that taxpayers may benefit from. For examples:
Gifts to Spouse: With the gift tax marital deduction, an unlimited amount of property can be transferred between spouses and will not be considered taxable gifts. This however is not applicable to taxpayers whose spouse is a non-resident alien (NRA) (not a US citizen and not a US resident alien). The gift tax exclusion in such case is limited to $155,000 (in 2019).
Gifts to Charity: A gift tax deduction is available for gifts made to qualifying charitable organizations and is not limited to gifts to be used within the United States.
Educational or Medical Payment: Tuition or qualified medical payment made directly to a qualifying educational organization or health care provider on behalf of a receiver is subject to unlimited gift tax exclusion.
Annual Gift Tax Exclusion: An annual exclusion of $15,000 is available for the total value of gift made to each receiver per year. These amounts will not be taxed and will not reduce the giver’s lifetime gift tax applicable credit.
Lifetime Exclusion: A gift of more than $15,000 must be reported but may not be taxable by applying the lifetime exclusion credit. The lifetime exemption allows individual to give up to $11.4 million (for 2019) throughout their lifetime without having to pay gift or estate tax.
What is the filing requirement?
If you gave gifts to someone during the year totalling more than $15,000 (other than to your spouse), you probably must file Form 709. Taxpayers must file their Form 709 no earlier than January 1st, but not later than April 15th after the gift was given. Any extension of time granted for filing your calendar year federal income tax return will also automatically extend the time to file your federal gift tax return.
The above is for general and informational purposes only and should not be used as legal or other tax advice. Please consult your own professional CPA or lawyer for clarification.
If you are in Hong Kong or Asia, please contact us today if you would like to discuss your situation.