A gift is a transfer that can be taxable. The gift tax was instituted to potentially tax transfers of assets that would have been taxable to the estate of the donor had the gift not been made. It is a way of preventing the transfer of assets during a donor's lifetime in an effort to avoid the estate tax.
Are there any Exclusions From the Gift Tax?
Yes, a donor can gift up to $13,000 per donee per year with no gift tax consequences. A husband and wife can gift up to $26,000 per donee per year. Once these annual exclusion amounts are exceeded, each individual has a $1,000,000 exclusion from the gift tax. However, if this exclusion is used it will dollar for dollar reduce the donor's lifetime exclusion for estate taxes.
What happens if a Donor exceeds their annual exclusion amount?
For each year that a donor exceeds the annual exclusion amount they must file a Form 709 gift tax return. Once their lifetime exclusion is exceed a gift tax will be due when the return is filed.
Who Pays the Gift Tax?
The donor has the primary responsibility for paying the gift tax and filing the Form 709. However, if the tax is not paid the donee has secondary liability to pay the tax.