You may desire to give money to family members for various reasons. The assets you develop for your children will offer them a significant financial edge in the future. Gifting money to family members might be a pleasant surprise on their birthdays or during the holidays. The gift of money might even help your family members make ends meet during difficult financial circumstances.
However, parents must examine more than just the tax effects of giving money to family before writing a check or forming a trust.
Generally, a person receiving a gift from their family does not have to pay gift tax until a donation exceeds $18,000 (this amount increases to $19,000 in 2025). A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). This means many gifts fall under the tax-free gift limit to family members, meaning that most smaller financial gifts don’t result in additional tax consequences.
At the federal level, assets you receive as a gift are usually not taxable income. However, if the cumulative value of gifts and transfers exceeds the federal estate tax exemption, this could result in additional tax liabilities.
Additionally, if the assets generate income in the future (for example, interest, dividends, or rent), such income will almost certainly be taxed. In these cases, such income could be classified under taxable gifts, depending on how the assets were initially reported and their usage over time.
In most cases, when gifting money to family and a tax is imposed, the gift tax is the giver's responsibility because the individual who receives the gift is typically not required to report it. If specific arrangements are made, the recipient can consent to pay the tax instead. If you're thinking of doing something like this, talk to a tax specialist first, as there are many nuances to understand when gifting to a family member.
You must submit a gift tax return if you present more than $15,000 in cash or assets (for example, stocks, land, or a new automobile) to any one individual in a year. This condition does not imply that you must pay a gift tax. It simply means you must complete IRS Form 709 to report the gift.
The yearly exclusion is per recipient, not the lump sum that you've gifted throughout the year. That means you may donate $10,000 to a relative, another $13,000 to a colleague, and so on without filing a gift tax return in the same year.
The yearly exclusion is also per person, so if you're married, you and your spouse may both give away $30,000 each year to anybody you choose without having to submit a gift tax return.
Gifts between spouses are ordinarily unrestricted and do not need a gift tax return. Donations to organizations are not gifts; they are charitable donations.
The gift tax is a levy on significant gifts that prevents substantial wealth transfers from occurring without being taxed. It is not an income tax, but rather a transfer tax.
For example, a single individual who donates several $15,000-or-less gifts to separate recipients for a year will not be subject to the tax on gifts to family and will not be required to submit a gift tax return. Furthermore, because the number of persons who can contribute more than this amount is restricted, only a small percentage of people must decide whether they need to submit a gift tax return.
However, it is crucial to learn what constitutes a gift. If you sell a residence for much less than the IRS considers its "fair market value," the difference is deemed a gift.
Lifetime gifts also apply to your estate tax exemption. This means that any gifts exceeding the annual exclusion amount may reduce the tax-free amount you can transfer through your estate in the future. Currently, the IRS permits you to donate up to $13.61 million without paying gift tax during your lifetime, so most taxpayers will never have to pay gift tax.
So, let's assume you give your child $65,000 in 2021. This donation exceeds the yearly gift exclusion by $50,000. That implies you'll have to file a tax return with the IRS. Gifts to children and friends won’t be taxed right away. The IRS instead deducts $50,000 from your lifetime gift tax exemption. If you're unsure whether your gift to a family member is tax-free, consulting IRS guidelines or seeking expert advice from a financial advisor can clarify your obligations.
A detailed look at one's present financial circumstances may be the best place to start when deciding whether and how to go about gifting to children.
An increasingly common trend of parents helping their adult offspring has evolved in our society. It might involve paying for mobile phone bills, higher education expenditures, first-time home down payments, and wedding expenses. Gifting money to family members is a generous way to support them during significant life milestones. However, full consideration should be given to how such gifts might affect the parent’s financial security. While supporting and donating money to adult children is customary, it might jeopardize a parent's retirement plans, especially if an unforeseen emergency or medical need arises.
Parents can give their adult children money in a variety of ways:
The optimal strategy for you and your family is determined by your financial status, children's situation, and dispositions.
If you still have questions about gifting money to family members, you should speak with a tax professional.
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