We all love gifts; if they come in the form of money, there’s nothing better than that. If your dad wants to gift you money, receive it with love and enjoy the present. However, you need to know a few tax conditions regarding monetary gifts.
A federal tax that the Internal Revenue Service (IRS) obliges on each taxpayer is a gift tax. The gifts include money, real estate and other modes of property. Regarding money transfers, the IRS has a limit on how much money can be transferred as a gift. If any amount crosses this limit, it will be reported and known as a lifetime gift tax exception. After you beat this limit, it becomes a payable gift tax. Let’s understand if your father or any family member can gift you money and related tax implications for better financial decisions.
How Much Is The Annual Gift Tax?
In the tax year 2023, if the gift value were $17,000 or less, that amount wouldn’t have been counted. This amount is known as the annual gift tax exclusion by the IRS. As a couple, if you have a joint property, you can gift someone from that, and you can give up on the annual tax exclusion.
Having a gift tax will make individuals stop them from giving away their money to abstain from paying their taxes. Based on the size of the gift, gift tax rates can vary. For example, if you offer someone a gift between $20,000 and $40,000, there will be a marginal gift tax rate of 22%. Similarly, the higher the gift, the marginal rate will change.
Do I Have To Pay Taxes On A Gift?
Usually, all gifts are taxable; however, there are a few exceptions. As the receiver, you do not have to pay the gift tax. The giver will be the one filing the gift tax return, which is only if needed, and paying the gift tax due, if any. The IRS might collect the gift from you if the gift tax isn’t paid by the person giving you the gift.
Do I Have To Report Gifted Money As Income?
If you receive any gift, it may be taxable. However, the gift receiver isn’t responsible for paying the gift tax. If the gift you are giving costs more than the $17,000 annual exclusion, then the person giving the gift must file for the gift tax returns.
Gift Tax Limit Estimation
In 2023, you could give up to $17,000 to someone. This is without any contribution of the gift to your lifetime exclusion of $12.92 million. Every year, the IRS follows and tracks any gift that goes beyond the annual gift exclusion price. The extra amount of the gift gets collected till the point it reaches the lifetime gift tax exclusion.
The lifetime gift tax exemption allows the person who gives the gift to offer more than the annual gift tax exclusion, for a gift tax return must be filed for any gift tax that crosses the limit of $17,000 annual gift tax exclusion. You only have to pay a gift tax if it is more than $12.92 million in their lifetime.
Conclusion
Receiving gifts on occasion is a joy! When your dad gives you money, you do not have to pay taxes. The person giving the money should be the one filing tax returns. You can give any gift to your children, but there is a threshold that shouldn’t be crossed, and the IRS sets this limit. Bring a smile on their faces by gifting your loved one’s money, and remember to file your gift tax returns on time. For tax-related and financial support, download the Beem app.
FAQs
Do I need to report a gift on my taxes?
The exclusion money will apply to each person who gives a gift to more than one person. If the gift you give is more than the annual gift tax exclusion money, which is $17,000, then the person giving the gift will need to file a gift tax return. Apart from that, you need to file Form 709 (gift tax return).
How much can you gift without paying income taxes?
A tax exclusion is the money you gift each year to someone for whom you don’t have to pay taxes. The excess limit for the gift tax exclusion in 2023 was $17,000, and $18,000 in 2024. Anything below this amount is non-taxable. A good strategy to avoid incurring the gift tax is splitting the gift.
