Where there is a transfer of property or money and the giver is receiving nothing or less than the worth of the property or money in return, it is considered a gift. There are taxes to be paid on gifts. It is primarily the giver that is required to pay the gift tax, but under certain circumstances, the receiver of the gift may agree to pay the tax instead.
All gifts are taxable, but there are certain donations, expenses and gifts that qualify for an exclusion from taxation. Some gifts that can be excluded include:
- Expenses you pay on someone’s tuition or medical treatment
- Gifts to your spouse
- Gifts to a political organization
- Gifts to qualifying charities (Charitable contributions are deductible)
If the amount in gifts does not exceed the annual exclusion limit for a year, you do not need to pay taxes on them. Only charitable contributions that are made to qualifying charities are tax deductible.
An estate given to heir(s) or a valuable given to heir(s) is not tax deductible. However, if you own a property or an asset together with your spouse, and want to give it away, both you and your spouse are eligible for the annual exclusion amount. The annual exclusion amount for 2013 is $14,000. If you and your spouse both qualify for an exclusion, the limit rises to $28,000. It must be remembered that the gift must be transferred on or after January 1, 2013, for the 2013 exclusion to apply. Giving gifts jointly can help save gift tax.
If you have given gifts or made charitable contributions in 2013, the end of the year is a good time to consider saving on gift taxes. The tax season for 2014 will begin on 31st January, 2014.