Definition - What does Gift Tax mean?
A gift tax is a tax that the giver of a gift must pay if that gift exceeds $15,000 in value (as of 2018; this threshold changes on an annual basis). The same $15,000 amount applies to a sum total of gifts given in a certain year. So, a person who gives a one-time gift, or a collection of gifts in a certain year, that has a value over $15,000 must pay a tax on those gifts.
There are, however, exceptions to this rule:
- Gifts to a spouse
- Gifts to a political organization
- Gifts that cover medical or education expenses
Justipedia explains Gift Tax
Certain gifts have such a large value that the government believes it is necessary to put a tax on them. For example, if a man gives his friend a $30,000 gold necklace, this would be something that would trigger a gift tax. Another example would be a woman who gives each of her 10 friends a $6,000 bracelet. Large gifts reflect large movements of financial value, and large movements of financial value are often taxed in the United States.
The person who gives the gift must file gift tax return, if required, and pay any applicable taxes. As in all tax scenarios, professional assistance is vital when it comes to planning gift tax.