A tax deduction, also known as a tax write-off, is an amount of money that is deducted from the total tax liability of an individual or organization. Under the U.S. tax code, taxpayers can deduct certain expenses, including charitable contributions and business expenses. However, as of 2012, a taxpayer could not deduct the cost of a gift given to a family member.
Generally, tax deductions are meant to encourage, or at least not penalize, certain actions on the part of taxpayers. For example, taxpayers are allowed to deduct a certain amount of charitable contributions from the income on which they must pay taxes to encourage philanthropy. The U.S. government does not consider the giving of gifts to family members as an action that would warrant incentives.
A gift to a family member would only be considered tax deductible if the family member were a representative of a charitable or religious organization — one deemed eligible by the IRS to receive tax-deductible gifts — and was receiving the gift on behalf of the organization. Even if the family member is poor, the IRS does not recognize the gift as charitable and will not accept any deductions claimed as a result of it.
A taxpayer also is allowed to deduct part of the cost of a gift, if the gift is a business expense. The IRS allows individuals to deduct up to $25 of the price of each gift given to a client or prospective client. Individuals can only deduct the cost of one gift per client per year. The individual also is not allowed to have a relationship with the client other than a business one, which excludes family members.
Not only are gifts to family members not tax deductible, but if the gift is large enough, it may be subject to taxation. As of 2012, an individual was allowed to give an annual gift of $13,000 per year to an individual without paying taxes on it. Any amount in excess of $13,000 will reduce the person's lifetime gift exclusion of $5.12 million. Once the lifetime gifts exceeding the lifetime exclusion amount is reached, gifts will be subject to gift tax. This law is meant to prevent individuals from avoiding payment of the estate tax by giving away their money before death.
- Internal Revenue Service: Travel, Entertainment, Gift and Car Expenss
- TurboTax: The Gift Tax
- Internal Revenue Service: Charitable Contribution Deductions
- Internal Revenue Service. "Frequently Asked Questions on Gift Taxes." Accessed Jan. 14, 2020.
- Internal Revenue Service. "Frequently Asked Questions on Gift Taxes for Nonresidents not Citizens of the United States." Accessed Jan. 24, 2020.
- Internal Revenue Service. "What's New - Estate and Gift Tax." Accessed Jan. 5, 2020.
- Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Accessed Jan. 13, 2020.
Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.