Thinking about giving some cash for the holidays? One of the questions we get asked most frequently is, “How much can I give? Do I have to pay tax on gifts I give? Does the person I give a gift to have to report it as income?”
In addition to making both the giver and the recipient happy, gift-giving can be a great year-end tax planning strategy. For 2013, individuals can make tax-free gifts, with no tax consequences for the giver or the recipient, of up to $14,000 to any individual. Married couples may split their gifts to each recipient, which effectively raises the tax-free gift to $28,000. Gifts between spouses are always tax-free unless one spouse is not a U.S. citizen, in which case the first $143,000 in gifts made in 2013 are tax-free.
Special rules for gifts made for medical care and education can be a valuable component of a year-end tax strategy, especially for individuals who want to help a family member or friend. Monetary gifts directly to a college to pay tuition or to a medical service provider are tax-free to the person making the gift and the person benefitting from education or medical care.
Gifts to charity also are frequently made at year’s end. Through the end of 2013, taxpayers age 70½ and older can make a tax-free distribution of up to $100,000 from individual retirement accounts to a charity, though Individuals taking this option cannot claim a deduction for the charitable gift.