As it stands, even seasoned professionals sometimes have trouble keeping up with tax codes and regulations. Heaven knows they change year in and year out. And then on top of that, there are countless types of taxes as well. One of the more confusing ones for most folks is the gift tax and for good reason. Well, we are here to hopefully give you a clear picture of what the gift tax is.
The first thing you need to know is that what you define as being a gift as opposed to the government’s definition may be very different. But in the end, guess whose meaning of the term counts? You’ve got it, good old Uncle Sam’s. The government views a gift as any kind of transfer, regardless of manner, in which total consideration, measured in terms of money or worth, isn’t received in return.
Why is there a gift tax you ask? Well, to those of us on the receiving end it is a bunch of bull, but to the ones on the imposing end it makes all the sense in the world. It is basically the government’s way of making sure someone doesn’t get around the estate tax. After all, think about it; if there wasn’t a gift tax a person with a good sized estate could give everything away before dying without Uncle Sam getting his hands on one bit of it.
Every individual is entitled to give up to $13,000 each year in gifts without incurring any tax liabilities. On top of that, a married couple can choose to split gifts as well, then making the limit $26,000. It works like this; say for example the spouses give a gift worth over $13,000. Come tax time both of them must file a return showing that they chose to split the gift given.
When it comes to a complete deciphering of the gift tax and all the ins and outs, you could undertake the process yourself. However, with the nature of the tax code and the constant changes that occur you are probably far better off letting a tax preparer deal with these kinds of matters. In fact, a person should never have a tax preparer or accountant who is not versed in topics like gift taxes. It is part and parcel of any qualified tax professional’s tool chest.
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