Note: The content of this video applies only to taxes prepared for 2010. It is included here for reference only. The IRS charges taxes on certain gifts that people make during the year. Learn about the IRS rules for Gift Tax with help from TurboTax in this video clip.
Note: The content of this video applies only to taxes prepared for 2010. It is included here for reference only.
Hello, I'm Jeremy from TurboTax with some information about the federal gift tax rules.
Did you know that the IRS charges tax on certain gifts people make during the year? But don't worry, most of those birthday and wedding presents are excluded. Here's why.
The gift tax rules tend to exclude most, if not all, gifts the average tax payer makes. This includes everything that you give to your spouse, paying someone's medical or tuition bills, some donations to political organizations and all other gifts that are not more than the annual exclusion amount.
This annual exclusion is key to avoiding the gift tax. It essentially allows you to make a certain amount of annual tax free gifts to different people. Let me illustrate.
- In 2010, the annual exclusion is $13,000.
- This means you can give a $13,000 check to 10 people and not pay a cent in gift tax even though you gave away $113,000 during the year.
I'm sure you are already thinking about what happens if you gave $15,000 checks instead. Well, it's likely you still won't pay tax because of the unified credit. You get one credit to use during your entire life which is generally one million dollars.
- So if $2,000 of each check exceeds the annual exclusion, you can use part of the one million dollar credit to exclude that amount as well.
- If you give ten checks and each exceeds the exclusion by $2,000, then you can subtract that $20,000 from your unified credit leaving you $980,000 in credit left for future gifts.
For more tax tips and guidance visit TurboTax.com