What is Gift
Gift is property, money or assets that one person transfers to another while receiving nothing or less than fair market value in return. Under certain circumstances, the IRS collects a tax on gifts. Transfers of money or property that are given freely or exchanged for less than market value may be subject to the gift tax if the donor has exceeded the annual or lifetime gift exemption.
BREAKING DOWN Gift
A gift differs from other types of financial vehicles such as investments and loans because a gift, in the strict technical definition, does not involve any expectation or obligation of repayment or a profit in return. A gift in its purest sense is given as a philanthropic gesture or an act of generosity. A gift can also be given to a charitable organization so the donor can benefit from tax deductions.
Gifts and tax considerations
A financial gift can involve specific tax implications for the parties involved, although this tends to mainly impact the person or party who provided the gift. Tax penalties or implications generally don’t apply to relatively small gifts. So you would only need to worry about a tax fee kicking in if you give a financial gift of a substantial amount. For the 2018 tax year, that minimum threshold is a gift of at least $15,000 made in a single calendar year by an individual, and $30,000 from a couple making a gift using money from joint resources or assets. That means gifts under those amounts are excluded from being considered by the IRS for gift taxes. However, there is also a lifetime gift exclusion fee, meaning an amount which you are allowed to give over the course of your lifetime that is excluded from gift taxes.
By employing careful planning and making financial gifts strategically, it is possible for an individual or couple to bestow quite a bit of money in financial gifts without incurring a large tax bill.
If you receive a gift, you generally aren't required to report it as income; it is the gift giver who is responsible for paying any tax and filing a gift tax return. Gifts of any amount to spouses or political organizations, and payments of tuition and medical expenses on behalf of others, are generally not taxable as gifts. In the case of gifts used for medical or educational expenses, the gifts must be paid directly to the hospital, school or other provider in order for the tax exclusion limits to be inapplicable. Estate planning can help wealthy individuals avoid paying gift taxes.