If your friend in England or Japan sent some money, you may wonder if you owe taxes on the transaction. The good news is, you won’t actually owe taxes on the payments you receive from overseas, but you’ll still need to report them. You’ll need to file Form 3520 and report all overseas payments along with your other forms at tax time. Failure to do so could result in penalties.
Although taxes generally aren’t required on overseas gifts, you’ll still need to report all foreign gifts on Form 3520.
Paying Tax on Gifts Received from Abroad
Although you’ll pay no taxes, you’ll file Form 3520 at tax time, reporting all gifts received from overseas on that form. You’ll need to include the name and contact information for the foreign trust, the name of any U.S. agent that was appointed to manage the trust and a description of the property that was transferred.
Exceptions Due to Section 2801
If you’re receiving money from overseas, the IRS may impose taxes in one instance. If your gift is from an expatriate who has terminated American citizenship, you may owe taxes under the Heroes Earnings Assistance and Relief Tax Act of 2008. In other words, you can’t move to another country and send money back to America tax-free without possible tax repercussions.
However, the IRS is still working on imposing this tax, so at the moment it’s important to merely save the information and be aware that you could later be imposed taxes on any funds you received from an expatriate who left the U.S. after 2008. Once the tax regulations are finalized, the IRS will release Form 708, US Return of Gifts or Bequests from Covered Expatriates, but as of the date of publication, this form still has not been published.
2019 Gift Tax Laws
Tax is imposed on the person giving the gift, so if you are receiving gift money from parents overseas, your parents will be responsible for any taxes imposed by their own government agencies. However, if you’re gifting to parents living overseas, you’ll need to pay close attention to the maximum gift you’re allowed before taxes kick in. Under the new tax laws, you can gift up to $15,000 per parent without paying taxes on the gift amount. But you can currently gift up to $11.4 million from your estate over your lifetime, so you likely won’t be required to pay tax on any amount you send from the U.S.
2018 Gift Tax Laws
For the 2018 tax year, you can gift up to $15,000 per parent without paying taxes. There is a hefty lifetime exclusion of $11.18 million, so chances are you won’t owe taxes on a financial gift sent from the U.S.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.