Gift tax is one of the most frequently ignored forms of taxes by individuals. A gift tax is best referred to as the tax imposed on an asset or commodity that has been given to a friend or relative other than the spouse. However, the process of imposing gift tax can be complicated at times. This happens when the value of the gift goes beyond the monetary limit. This exposes the individual to gift tax. A complete understanding of gift tax is imperative for people who make donations to charities in the long run. There are immense benefits associated with the tax that many don’t know about. Here are some things that everyone should know about gift tax.
Annual gift tax exclusion
It is important to ensure that a person is aware of the annual exclusion limit on donations and gifts. The gifts which fall under the annual exclusion limit are not subjected to gift tax. However, this threshold changes almost every year. The gift tax is applicable to relatives, friends, children, and even strangers. The only person who is exempt from gift tax is a spouse. It is interesting to note that once married, the permitted value of a gift given to a spouse double and the value of the gift can be as much as possible within the extended annual limit.
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Promotional gifts are not counted for gift tax
The gifts distributed as a part of a promotional event aren’t considered for tax. The key intention behind such gifts is to get something in return, i.e., self-promotion. The promotional gifts put a burden on the receiver instead of the distributor as these increase the wealth of the receiver.
Education and medical exclusions
Individuals must be aware of the payments made for educational as well as medical expenses for another person is not considered for gift tax. However, it is essential to ensure that the payments are being made directly to the concerned authorities—education institutes or hospitals. Failure to do so will not exempt an individual from gift tax.
Lifetime exemptions
As specified above, there is a limit to annual exclusion. The gifts offered to someone within the annual exclusion limit does not affect an individual’s lifetime exemption. However, if the limit is exceeded, the donor is expected to fill a form followed by reporting the amount that does not meet their lifetime exemption. Also, it is not imperative to pay gift tax after exceeding the limits; one can apply for the relevant gifts associated with the lifetime exclusions as a part of the estate tax.
The above things are essential for taxpayers and individuals to take remember. Apart from medical and educational purposes, there are several other areas such as political contributions, donations to charity, etc., which do not attract gift tax on the payments made. To resolve any confusion related to taxation, it is best to seek professional advice from experts.
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