U.S. gift tax is imposed on individual donor only.
The donor must file gift tax return if he gives more than $16,000 to one recipient during the tax year. Gift tax rate can be up to 40%
Even debt cancellation can be considered as taxable gift.
Wealthy taxpayers use gifts as a way to reduce their exposure to estate tax. Any US citizen who accumulates wealth over his life time more than approximately $12 million dollars, is subject to estate tax upon his death.
Gift tax returns can be “pretty voluminous”, requiring expert valuations, elections, and disclosures. Proper documentation of the whole process is a good defense against an IRS audit. The normal three year statute of limitation can be challenged by the IRS, in case it claims that the amount of gift omitted exceeded 25%.
The value of a gift is the fair market value (FMV) of the property on the date the gift is made. This is generally an area of dispute between the IRS and the tax payer.
In certain cases it is favorable for the tax payer to file gift tax return, even if there is no tax due, in order to take advantage of the adequate disclosure statute of limitations (3 years). The IRS will not be able to open the case and assess gift tax on “unreported gifts”.
These are general guidelines regarding gift tax issues.
Contact Eli Jacoby CPA in order to make tax planning and reporting suitable to your own situation.