In Illinois, the Internal Revenue Service, or IRS, taxes the transfer of money or property when people give gifts. The IRS considers gifts anything that one person gives to another without receiving something of equal value in return. Individuals who sell something at below market value or make interest-free loans are also making gifts. However, there are exceptions to these rules.
Gift Amount Limits
Donors are responsible for paying gift taxes; however, the IRS has an annual exclusion rule. The rule states that donors may give gifts worth up to $13,000 tax free. No maximum amount of gifts that donors can give exist. For example, if an individual wanted to give each of her four children $13,000, she would not have to pay taxes on any of it. If married, the annual exclusion doubles. Together, an individual and her spouse can give up to $26,000 in gifts to each donee every year.
Donors who give more than the annual exclusion amount to an individual in a single year must file a gift tax return. The IRS allows people to give $5 million worth of gifts in their lifetime without paying taxes or filing a return. Donors do not use up any of this amount unless their gifts exceed $13,000 in one year to a single person. For example, if a mother made a $25,000 gift to her daughter, she used only $12,000 of her lifetime limit.
Some gifts are not subject to taxation. Individuals who pay someone else's college tuition do not have to pay tax on the amount, regardless if it is for her children or an unrelated family member. Books and course fees are excluded from the tax as well. Paying medical expenses is considered a gift and is tax free. Gifts between spouses escape taxation and there is no limit to the size of the gift. Another exclusion is a gift made to a political organization.
The IRS encourages people to make charitable contributions. Gifts to federally recognized charitable institutions are tax free. This includes property, cash, art and other objects of value. In addition, the donors can deduct charitable contributions on their tax returns. An allowance for charitable gifts is built into the standard deduction for taxpayers who claim it rather than itemizing. However, itemizing may save taxpayers more money. The gift cannot exceed half of the individual's gross income for the year.
- Fairmark.com: Tax Rules For Gifts
- Internal Revenue Service. "Frequently Asked Questions on Gift Taxes." Accessed April 30, 2020.
- Internal Revenue Service. "2019 Instructions for Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return." Page 8. Accessed April 30, 2020.
- Internal Revenue Service. "2019 Instructions for Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return," Page 3. Accessed April 30, 2020.
- Internal Revenue Service (IRS). "Publication 559: Survivors, Executors and Administrators: Estate and Gift Taxes." Page 26-27. Accessed April 30, 2020.
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- Federation of American Scientists. "Recent Changes in the Estate and Gift Tax Provisions." Page 1. Accessed April 30, 2020.
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- Internal Revenue Service. "Instructions for Form 706: Time for Payment." Accessed April 30, 2020.
Rena Dietrich is a freelance writer who has been writing about topics in the business field since 1997. Her work has appeared in publications ranging from accounting textbooks to financial newsletters. Dietrich received her Master of Business Adminstration from Governor's State University.