Annual Gift Tax Exemption for 2011, 2012

The gift tax is when someone gives property to someone else and receives nothing or less than full value in return. Whether the giver intends the transfer to be a gift or not, it doesn’t matter, the tax still applies.

If you give property to someone, and yes that includes money, then you have given a gift. It is a gift if you are not expecting anything in return or at least equal value in return. The gift tax does apply to the transfer by giving the gift of any property.

You may be giving a gift if you give someone an interest free loan or a loan at a low interest rate. It may also be classified as a gift if you sell something for less than its full value.

Gift Exemptions

Usually any gift is a taxable gift however there are always exceptions to the rule. Generally speaking, gifts that are for tuition or medical expenses are exemptions (the educational and medical exclusions). Of course, gifts to your spouse are not taxable gifts. You can also give a gift to a political organization that will not be taxable. Don’t forget about qualified charities. When you give to qualifying charities, you can deduct the value of the gift.

Income Tax Return

You may be wondering if you can deduct gifts on your income tax return. Well you can deduct gifts made to a charitable organization as I have already stated. Make sure it is a qualified one first. If you leave your estate to your heirs or make a gift, it ordinarily doesn’t affect your federal income tax return. If you’re really not sure what gift tax situation you fall in then, you can consult Publication 950 to try to find some answers that are unique to your situation.

Questions and Answers

If you still have questions about gift tax exemptions, then I would consider using a professional tax preparation software program like TurboTax Online. The laws on gift taxes are known to be some of the most complicated in the Internal Revenue code. Turbo Tax has tax experts standing by to help you with any questions you may have. They also have an audit alert scan to make sure there aren’t any errors that would wave a red flag to the IRS. They can take something complicated and make it easy. Give Turbo Tax Online a try today!