Gift Taxes: When Do We Report Gifts to the IRS?

By Jen Sieczkowski

If your generous Uncle John hands you a gift worth $15,000, do you need to let the IRS know about it? Fortunately, no. However, depending on the year the gift was made, the donor might! The rules have changed many times over the years so you need to be aware of what the rules are at the time a gift is made. Fortunately, the gift tax kicks in at high enough levels that very few are affected by it.

What is a gift?

A transfer is a gift if it is between a competent donor and a donee that is capable of receiving and possessing the gift. The item transferred is a gift if transferred for less than adequate consideration. In other words, the donor is giving or selling his possession for less than its true value.

Annual Gift Exclusion

For the year 2019, a donor is able to gift $15,000 per donee without having to file a gift tax return. A married couple is able to take advantage of what is known as “gift-splitting” which allows them to give away $30,000 jointly. If a couple chooses to split a gift, a gift tax return must be filed to prove that the spouses have agreed to split the gift.  It’s also important to note that some gifts are never subject to a gift tax:

• Charitable gifts
• Political gifts
• Gifts between spouses
• Educational or medical type gifts – these need to be made directly to the care provider or the educational institution, though.

Gifts and estates

The estate tax is the other federal transfer tax and is assessed at the time of an individual’s death. For 2019, it is assessed on estates exceeding $11,400,000 in value. Gifting is one of several ways to at least lessen the bite of the estate tax by reducing your estate near or below the taxable threshold. The gift tax and the estate tax can be easily avoided throughout one’s life by just being aware of the laws and planning accordingly.

If you have any questions on a gift or estate taxes, please reach out to me at jen@all-cpas.com or 617-738-5200.

About the Author

Jen Sieczkowski 

Jen is a Director at ALL CPAs and has over 20 years of experience servicing the accounting and tax needs of individuals, trusts, estates, and privately held businesses. She focuses her work on Individual & Fiduciary income tax planning and return preparation. She also has vast experience in professional practice management; workflow and technical practice procedures.

Jen enjoys developing close relationships with her clients and playing an integral role in their financial wellbeing. It’s not uncommon for a client to call and ask advice on making a major financial decision or just be calling to let Jen know their kid got into college