Gifting And The IRS

If you want to make gifts to your children or other family members and you do not tell the government, the IRS may try to track you down in order to find extra tax money.

If you give money away, are there any taxes due?

For the most part, the answer is no. First, if you give mone to let's say you children, there is no income tax owed by your children on the gifted money. However, most people do not realize that if you give more than $13,000 away to one person, the IRS wants you to file a Gift Tax Return, so that they can keep track how much money you give away during your lifetime. There may be no tax due, but the return is supposed to be filed. As a matter of fact, the IRS just started a new initiative at the end of last year to have California turn over records of all gifts of real estate made between 2005 and 2010. The head of the IRS Estate and Gift Division leading this investigation noted that they have done sampling of 15 other states, including Ohio, and they have found no one in Ohio had filed Gift Tax Returns on real estate. However, for most people, make a gift over $13,000 does not mean you owe Gift Taxes. As a matter of fact, you can give up to $5 million dollars away without any Gift Tax. Double that if you are married. However, the IRS still wants to know if you had made a gift.

Five million dollars is a lot of money to give away. Most people do not have that kind of money to give away, so why does it matter to the IRS?

First, the IRS is hoping to catch the very wealthy who might be avoiding Federal Estate and Gift Tax rules. However, even if you do not give away enough to owe Gift Taxes, the government still wants this information. The tax laws might change in the future. For example, if Congress does not address the Tax Law by 2013, gifts over $1 million dollars could be subject to a Gift Tax. This may impact many additional people. The bottom line is, is that it is okay to plan to save taxes by giving away assets, just make sure to file your tax returns.