The first tax-free donation method is the exclusion of the annual gift tax. Gift tax is a federal tax that applies to transfers of money or assets to other people without receiving anything (or less than the full amount) in return. If you want to calculate the taxable income for donations that exceed the annual exclusion limit, the following table breaks down the rate you'll have to pay based on the value of the gift. And if a married couple makes a joint property donation, each can donate up to the annual exclusion.
However, if you receive the property as a gift from you, your tax base is generally whatever your tax base. The IRS will provide a copy of a gift tax return when Form 4506, Request for a Copy of the Tax Return, is correctly completed and filed with justification and payment. Finally, it's important to note that charitable donations are not only exempt from gift tax, but they may also be eligible as an itemized deduction on your individual income tax return. Form 4506 has multiple uses and special attention should be paid to filling out the form for a gift tax inquiry.
The IRS imposes gift tax if you transfer money or assets (worth more than the exempt amount) to another person without receiving at least the same amount in return. You must file a 709 form every year you make a declarable gift, and each form must list all declarable donations made during the calendar year. If you sell family properties or heirlooms to your child at full fair market value, you don't have to file a gift tax return. Do the above and you'll need to fill out a gift tax form when you file your returns, but you may still avoid having to pay any gift taxes.
However, most donors who can afford to make donations large enough to be subject to gift taxes can also pay gift tax. While no taxes are due in this situation, the first spouse would have to file a gift tax return stating that the second spouse had agreed to divide the gift. Parent support payments for a minor are not gifts if they are required as part of a legal obligation. The IRS will provide a transcript of the account for gift tax returns when Form 4506-T, Request for a Transcript of the Tax Return, is correctly completed and filed in good standing.
Caring is sharing, but some situations often inadvertently cause the need to file a gift tax return, professionals say.
