You may choose to give a gift for many reasons. Perhaps a friend or family member has fallen on hard times. Or, your son may be starting out on his own, and you may want to help him get established with his own home. If you have the resources, why not help out these people? Of course, you may want to know if you can get some help from the Internal Revenue Service for your good graces. Or worse yet, is it going to cost you to be nice?
Gifts that you make to any registered nonprofit charity are deductible on your income tax if you itemize deductions. This includes gifts of cash, as well as other property. You may claim a deduction for the actual cash value of the gift. You must keep track of these gifts by saving receipts, bank drafts or credit card statements. In addiction, any gift of more than $250 requires written acknowledgment from the charity, outlining the date and amount of the gift.
Gifts to Others
A cash gift or gift of property to another individual or entity that is not a nonprofit charity is not tax-deductible. The recipient of the gift will not have to pay any taxes on this gift as well. You may need to pay a gift tax, depending on the size of the gift.
If you give a large amount of money or property to another individual or business, or any entity that is not a nonprofit, you could be liable for the gift tax. You are allowed to give away up to $13,000 to any one person, or $26,000 between you and your spouse if you own the property together, without incurring the gift tax. If you give away more than that, you can apply the gift to the $1 million exclusion that the IRS allows over the lifetime of the gift-giver.
If the recipient of the gift to is married, you may also give the maximum allowed to his spouse, without incurring the gift tax. Your spouse may also do the same. For example, as of 2012, you can give $13,000 to your son, and an additional $13,000 to your daughter-in-law. Your spouse may do the same, meaning you can give $52,000 to this family unit. If you give more than this is any one year, you need to file Form 709 with the IRS, and either pay the gift tax or claim it against the lifetime exclusion.
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