As the holiday season approaches, purchasing gifts are jotted down on just about everyone’s to-do list. This may raise the question to some individuals, will I have to include these gifts in my taxes? The general answer to this question is no. An individual who is receiving a gift generally does not have to pay a gift tax whereas the individual who gives another a gift will file a gift tax return; however, filing a gift tax return is only necessary if the gift exceeds the annual gift tax exclusion amount. The exclusion amount may vary over the years but as of 2021, gifts that do not exceed $15,000 do not require a gift tax return to be filed.
Just because a gift exceeds the annual limit of $15,000 does not mean it will automatically trigger the gift tax. This is because of what is known as the “lifetime gift exemption.” The lifetime gift exemption is the amount of assets or property an individual can give away in their lifetime; as of 2021, the lifetime gift exemption was raised to $11.7 million. To better understand, suppose a father wishes to pay $30,000 toward his daughter’s medical school whose loans and tuition are under her own name. With this cash gift toward her tuition, the father will be exceeding the annual gift exclusion amount. However, because the lifetime gift exemption is $11.7 million, the father would report a gift to the IRS and deduct $15,000 from his $11.7 million lifetime exemption. Thus, the father would still be able to give away $11,675,000 tax-free (provided that he hasn’t given gifts that exceed the annual limit before). Its important to note that the lifetime gift exemption applies to gifts given by the individual while they are still alive and also applies to property the individual leaves to their heirs after they die. Because of this, tax implications may be imposed on your heirs if the property you leave behind exceeds your remaining amount of your lifetime gift exemption.
Lastly, it is important to note that the gift tax applies on a “per person” basis. This means you can give up to $15,000 to as many people as you wish before having to deal with a tax. To learn more about gift taxes and estate taxes, check out or other blog posts found on our website!
