What is a 'Gift Tax'

A gift tax is a federal tax applied to an individual giving anything of value to another person. For something to be considered a gift, the receiving party cannot pay the giver full value for the gift, but may pay an amount less than its full value. It is the giver of the gift who is required to pay the gift tax. The receiver of the gift may pay the gift tax, or a percentage of it, on the giver's behalf, in the event that the giver has exceeded his/her annual personal gift tax deduction limit.

BREAKING DOWN 'Gift Tax'

The following are generally excluded from gift tax:

1. Gifts to one's spouse.
2. Gifts to a political organization for use by the political organization.
3. Gifts that are valued at less than the annual gift tax exclusion for a given year.
4. Medical and educational expenses – payments made by a donor to a person or organization, such as a college, doctor or hospital.

As the regulations applied to gift taxes are very complicated, it is best to check with your respective tax authorities if you have given anyone a gift valued at more than $14,000 "on or after January 1, 2013," according to the IRS. In 2017, the gift tax maximum remained at $14,000. In 2018, that number rises to $15,000. This means that (starting in 2018) an individual may give another individual $15,000 or less per year, without incurring a gift tax. 

RELATED TERMS
  1. Gift in Trust

    A gift in trust is an indirect bequest of assets to a beneficiary ...
  2. Annual Exclusion

    Annual exclusion is the amount of money that one person may transfer ...
  3. Gift Of Equity

    The sale of a home made to a family member or someone with whom ...
  4. Gift Letter

    A gift letter is written correspondence explicitly stating that ...
  5. Charitable Gift Life Insurance

    Charitable gift life insurance is a method of contributing to ...
  6. Charitable Gift Annuity

    A charitable gift annuity is an agreement in which an individual ...
Related Articles
  1. Taxes

    How to Avoid Gift Taxes

    For most, the answer to the question, “How much is the gift tax?” can be “nothing."
  2. Insights

    Will Your Gift Card Gift Go Unused?

    An unbelievable amount of money gets wasted in the form of non-redemption: nearly $5 billion a year. These tips will ensure that your gift card gift doesn't go to waste.
  3. Personal Finance

    How To Get Gift Cards At A Discount

    Use these tips whether you're buying someone a gift or just want to score a discount at your favorite stores.
  4. Investing

    How Safe Are Discounted Gift Card Websites?

    Could you buy a gift card online and find out it's worthless? Here's how to protect yourself (and whether you need to).
  5. Insights

    Avoid Overspending With These 10 Holiday Gift Ideas

    Give these 10 memorable gifts this holiday season without breaking the bank.
  6. Retirement

    Top 10 Retirement Gift Ideas for That Special Day

    The age-old traditional gold watch has not gone out of style, but it's only one of many appropriate gifts to give a retiring employee.
  7. Retirement

    Estate Planning Law Changes You Need To Know

    When organizing your affairs, you'll need to be aware of tax rates and other regulations.
  8. Taxes

    How to Give a Tax-Saving Gift Before The Year Ends

    Giving to charity and family members before year-end can help you save on 2016 taxes.
  9. Taxes

    Valuable Year-End Tax Moves for 2016 (Part Three)

    Here's a look at tax strategies for itemized deductions, charitable gifts and other tax credits.
  10. Taxes

    10 Sources of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
RELATED FAQS
  1. Can I give stock as a gift?

    Stocks, bonds or any other securities can be transferred as gifts, and this also creates benefits for the giver of the securities. Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center