How to Avoid a Gift Tax

The IRS makes it possible to give non-taxable money or property to one or more people or an organization. Below are 3 ways to ensure that the gift doesn’t carry tax consequences.

  1. Stay within the annual exclusion – For 2014 and 2015, the annual exclusion per third-party receiver is $14,000, or $28,000 total for you and your spouse. Note that a gift may be taxable if you ‘gift’ a person by forgiving a debt or make an interest-free or below market rate loan.
  2. Pay tuition or medical expenses directly – Giving a gift of education or medical expenses qualifies for any amount as long as the expense is paid to the institution, not an individual.
  1. Give to a charity, or political organization – Gifts of any amount are tax deductible to you when giving to qualified organizations. You need to collect a receipt for amounts that exceed $250.

An added bonus for the receiver is that generally the person who receives your gift doesn’t have to pay a federal gift tax or income tax on the gift received.

Answering yes to any of the following questions will trigger an additional form to complete for the IRS (Form 709):

  • Did you give any gifts to at least one person (other than your spouse) that was more than the annual exclusion amount, including debt forgiveness or below market rate loans?
  • Did you and your spouse both give a gift to the same person or organization?
  • Did you give anyone other than your spouse a future interest in a financial transaction from which they will receive income in the future?
  • Did you give your spouse interest in property that will terminate due to a future event?

For more information, talk with a Salmon Sims Thomas tax advisor.