Know what gifts are taxable

When an individual receives a gift, whether cash or property, the gift is generally not taxable to that individual. Sometimes, however, the gift giver may incur a gift tax liability when making certain gifts. If you make a gift to family members or other individuals, you can give $14,000 or less in value to a single individual during the year

and you do not have to report the gift or file a gift tax return. The so-called "annual exclusion" of $14,000 simply means that gifts during the year to an individual that are equal to or below this exclusion amount are not considered reportable gifts.

Certain gifts for medical expenses and educational expenses do not count toward the $14,000 exclusion and allow you to maximize your gifts for the year. For medical expenses, amounts you pay directly to the person or organization providing the medical service or care are excluded from the gift tax. To qualify for the exclusion, the medical expenses must meet the requirements for deductibility and generally include expenses paid for diagnosis, cure, mitigation, treatment, or prevention of disease. It also includes amounts paid for medical insurance.

With regard to educational expenses, similar rules apply. Transfers made to qualifying educational institutions for tuition are not subject to the gift tax and do not count toward the $14,000 annual exclusion. The exclusion applies to tuition for full or part-time students paid directly to the educational institution. Amounts for expenses such as books, room, board, or other supplies are not eligible for the exclusion.

Gifts made during the year that exceed the annual exclusion are considered "taxable" gifts and are required to be reported on a gift tax return. You are allowed a lifetime exclusion of $5 million in taxable gifts before any out-of-pocket gift tax is actually due.

Tax Tips Small Business

  • Bartering and trading? Each transaction is taxable to both parties

    Sometimes, when the right opportunity presents itself, you may be able to pay for goods and services that you need or want by trading goods that you own, or providing a service that you can perform in return. An example of this is if you own a lawn maintenance company and receive legal services from an attorney and pay for those services by providing an agreed upon amount of mowing and maintenance services at the attorney's home or place of business.

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Small Business Quick Tip

  • Personal Use of Vehicle

    If your business owns a vehicle that is available for an employee's personal and business use, the vehicle is nevertheless considered used 100 percent for business on the business tax return. The personal-use percentage is included on the employee's W-2 as additional compensation.
Saturday, 25th May 2019
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Tax Tips Personal

  • Refinancing Your Home Mortgage

    What's deductible and what's not?

    While there are benefits to refinancing your home mortgage, most refinancing costs are not deductible on your tax return. There is one exception, however. The amount you pay for points, or prepaid interest, may be amortized over the life of your new loan. Although this might not amount to much when you spread it out over 15, 20, or 30 years, don't file away your closing papers quite yet.

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Personal Quick Tip

  • Roth IRA Contribution

    You can actively participate in your employer's qualified plan and may still be able to contribute to a Roth IRA. A deduction for contributions to a traditional IRA may be limited or nondeductible if you are a participant in a qualified retirement plan.