Did you know you need to report cash gifts to the IRS?

If you’ve recently given a cash gift to a family member or loved one, you’re probably not thinking about taxes. But this tax season might be different than others if you have gifted cash. That’s because you could be on the hook to pay taxes for it. Keep reading below where we’ve gathered our top tips for dealing with gift taxes.

Gift Exclusions

If you are planning to gift money, there is a limit to the amount that you can give away tax-free. In 2023, the maximum amount that taxpayers are allowed to give was $17,000 for each recipient per year. This means that a married couple can give away $68,000 in 2023. It is important to note that this amount changes annually and is up $1,000 from 2022.

Consider Gifting Other Expenses

To avoid paying additional taxes you might want to consider gifting your loved one cash in an indirect method. That’s because paying indirectly for things like medical or school bills won’t trigger any rules for the IRS to investigate.

The only issue with this is that you would need to pay the provider or institution directly to avoid the gift tax. Simply giving money to your loved one for them to pay will still be considered a gift.

Another option to avoid the gift tax is to move money into a 529 college savings account instead of giving money directly to a person who is in school. Enrolling in this plan allows you to give five years’ worth of annual gifts in a single year. However, the catch with this is that you won’t be able to make any additional tax-free gifts in the next five years since you will have exhausted your annual contribution limits.

Gift Tax Return

You might need to file a gift tax return if you’ve gifted money over the annual exclusion limit. If you have done this, you will need to file a gift tax return and pay anything that is owed by the same deadline as the federal income tax return date (typically April 15th).

When filing for the gift tax return, you will need to include the following information: a description of the gift, the recipient’s details (name, address, and relationship) the date of the gift, and the gift’s value on that date.

If you do not submit this information or fail to file before the deadline the IRS might apply a 5% penalty for the value of the gift for every month that the return is past due.

Lifetime Gift Extensions

If you’ve given gifts within a tax year and exceeded the annual exclusion amount, there might be a way to avoid paying taxes. That’s because any gits that exceed the annual exclusion will also be deducted from your ‘lifetime gift’ exemption. This exemption is defined by the IRS as the total amount that you can give away over a lifetime without having to pay federal estate taxes.

For any amount that falls above the annual limit, you will need to file a gift tax return using Form 709 and put the exceeding amount against your lifetime exclusion limit.

Ultimately, we understand how difficult taxes can be which is why we’re here to help. Our trained staff will carefully walk you through the tax rules to ensure a successful tax season.

So, if you’d be interested in learning more, or knowing what services would benefit you, give us a call at 407-328-5001.

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