When Do You Have to Report a Gift?

One question that I’m often asked are about gifts. I’ve just received a large gift or inheritance; must I pay tax on it? Or, I gave a gifts to friends and relatives this year; do I have to report it? 

For the gift giver, you will have to report any gift valuing over $14,000 per person. That means if you give $15,000 to your brother and $10,000 to your sister, you only have to report the gift to your brother on IRS Form 709.  You will not owe tax on it as long as you have given less than $5.34 million (2014) in gifts during your lifetime.

Just remember it is not only cash gifts that may have to be reported but also gifts of non-cash items. So, mom and dad, if you buy Junior that new car, make sure it is under the $14,000 exemption. But good news for mom! Gifts between spouses, not matter the amount, are exempt from having to be reported! This reminds me to drop hints to my husband to take me to the jewelry store 🙂

The good news is that gifts are not taxable to the recipient. However if you earn money from that gift (such as interest or, after investing, sold stock), you may owe tax on the income earned.

However, if you receive a gift from a foreign source, it will have to be reported even though they are not taxed. If you receive a gift of more than $100,000 from a non-resident alien individual, or a gift of more than $13,258 from a foreign corporation or a foreign partnership, it must be reported to the IRS on Form 3520. The penalty for not reporting the gift is 5% of the value of the gift per month late, up to a maximum of 25%. There are special rules if you are the recipient of a gift from a foreign trust. Note that Form 3520 is filed separately from your tax return but is due on the same date as your tax return (including extensions). 

If you have any gift tax questions or are not sure if a gift will need to be reported, please contact Gallati Professional Services!

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