Are Gifts Taxable?


Are gifts taxable income? According to the IRS, a gift is defined as “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”

Gifts from family or friends are not taxable to the recipient for federal income tax purposes. However, the IRS does not generally view corporate giveaways as gifts, because companies do not give gifts with the same intentions as friends and family do. For example, if you win a car, it is not considered to be a “gift” by IRS standards, because the giver is receiving self-promotion in return.

You are not required to pay tax on gifts that are less than the annual gift exclusion limit. The annual exclusion is currently $14,000 per recipient. However, a gift to your spouse is exempt from the gift tax, because it qualifies for the marital deduction. Other gifts that are not taxable are gifts to political organizations and gifts to charities.

A married couple can make a gift up to $28,000 to a third party without making a taxable gift. The gift is considered as one-half by one spouse and one-half by the other. If a married couple splits a gift they made, they must file a gift tax return to show that they agreed to use gift splitting.

Gift tax returns (Form 709) are not necessary unless you give someone, other than your spouse, a gift worth more than the annual exclusion for that year. Additionally, gifts to political organizations, for tuition, or for medical expenses, must be paid directly to the institution to qualify for the exception.