How much money can I give someone before they have to pay taxes on it?

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Question:

How much money can I give someone before they have to pay taxes on it?

Answer:

Gifts that you received are not necessarily considered as income from the IRS. Surprisingly, it does not matter how large these gifts are.  You do not need to report them on your income taxes if they are true gifts. 

There are a few considerations on this rule: 

  • The rule of not having to report gifts does not apply if the gift is not a “true gift.”  For example, anything that you receive in exchange for goods and services is a payment, not a gift. Payments must be considered as income, and cannot be legally hidden by calling them gifts.
  • If you earn income after the gift is given, you must report that income.  For example, if you receive stocks and bonds as gifts, you must report that dividend and other associated income on your IRS income tax return.
  • The tax rules differ if you are the one giving the gift.  In most cases you do not have to pay taxes on gifts you give, nor can you claim true gifts as tax deductions if they are made to individuals. Gifts given to charitable donations can be deducted from income taxes.
  • Monetary gifts that exceed a certain amount may be taxable, depending on the purpose of the gift and who it is given by. These rules can vary - for example, parents may be able to give more money to children or you may be able to give more money if it is for the purposes of paying tuition or medical expenses, so you should contact a tax lawyer to find out the specifics.

Understanding the gift tax exclusion and the rules for giving gifts is complicated and it is always a good idea to speak with an experienced tax lawyer to understand the rules before either giving or receiving items of value.

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