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.
Changes to Gift Taxes for 2018
Tax is imposed on the person giving the gift, so if you’re 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 $11.18 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.
Gift Taxes in 2017
For the 2017 tax year, you can gift up to $14,000 per parent without paying taxes. There is a lifetime exclusion, though, so chances are you won’t owe taxes on a financial gift sent from the U.S.
- IRS: Gifts from Foreign Person
- IRS: Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
- Accounting Web: New IRS Regs Cover Tax on Gifts and Bequests From Expatriates
- The Motley Fool: What Is the Tax Law on Foreign Cash Gifts?
- Journal of Accountancy: Proposed Rules Govern Taxation of Gifts and Bequests
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