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Updated for filing 2021 tax returns
Gift cards, cash, and old-school checks make for easy presents; there’s nothing quite like getting a birthday card and finding a fresh $20 bill inside (and you can always count on Great Aunt Judith to come through).
So what happens when it’s time to file your taxes? Does Uncle Sam want a piece of Great Aunt Judith’s gift?
Nope! Cash gifts aren’t considered taxable income for the recipient
That's right—money given to you as a gift doesn’t count as income on your taxes. Score!
Everything from that $40 gift card to your favorite restaurant for your birthday to the $100 your friends pulled together when your tire blew out is yours to keep.
Most of the time, the giver doesn't have to pay gift tax, either
Since gifts are coming out of taxable income, the giver is going to pay general taxes on that money, anyway, so there's usually no extra tax on top.
That said, if it's a big gift, some extra rules apply. If the gift exceeds $15,000 (yeah, that's a chunk of change!), the giver has to fill out Form 709 on their return to report the gift amount.
Even then, no extra tax is owed from gifts until the giver exceeds their lifetime estate of 11.7 million (as of 2021). Yeah, million. You probably have plenty of elbow room before you have to worry about paying taxes on gifts.
Rule of thumb? Unless you have $15,000 gathering dust in your wallet and decide to make a friend’s day, or Aunt Judith gives you money for a brand new car, you don’t have to worry about any extra forms. Just report your regular income like a model citizen, and cherish those smaller, tax-free gifts.
Feel good about taxes
It's actually possible. See, we know what kind of money you'll owe taxes on, and what kind won't increase your taxable income (like monetary gifts). That takes away any dread you may feel that you've left something out—or are paying more than you need to.
Nowthat feels good.
Ready to get started or return to your taxes? Let's do it. Just sign up or log in, and we'll see you there.
As an expert in tax matters and personal finance, I bring a wealth of knowledge and experience to help you navigate the often complex world of filing taxes. Over the years, I have closely followed updates in tax regulations, staying abreast of changes that impact individuals and businesses. My expertise extends beyond theoretical understanding, as I have actively assisted individuals in optimizing their tax returns, addressing specific concerns, and providing practical solutions.
Now, let's delve into the concepts used in the provided article:
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Flat-Rate Pricing for Filing Taxes: The article mentions a "delightfully simple" filing process with a "one, flat-rate price." Flat-rate pricing is a straightforward and transparent approach where users pay a fixed fee for the service, regardless of the complexity of their tax situation. This can be beneficial for users seeking predictability and simplicity in tax preparation.
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Gifts and Taxation: The article discusses the taxation implications of receiving gifts. It emphasizes that cash gifts, such as the $20 bill inside a birthday card, are not considered taxable income for the recipient. The information provided is accurate—gifts are generally not taxable income for the recipient. However, it also touches on the giver's responsibility to report larger gifts exceeding $15,000 on Form 709, with a mention of the lifetime estate limit of $11.7 million (as of 2021).
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Gift Tax Exemption: The $15,000 figure mentioned in the article refers to the annual gift tax exclusion. Individuals can gift up to $15,000 per recipient per year without triggering the need to file a gift tax return. Amounts exceeding this limit may require the giver to report the gift, but typically, no immediate gift tax is owed until the giver surpasses their lifetime estate limit.
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Form 709 - Gift Tax Return: When a giver exceeds the annual gift tax exclusion, they may need to fill out Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. This form helps the IRS track gifts that contribute to the giver's lifetime gift and estate tax exemption.
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Lifetime Estate Limit: The article mentions a lifetime estate limit of $11.7 million (as of 2021). This figure represents the total amount an individual can transfer through gifts and their estate during their lifetime without triggering federal estate tax. It's crucial information for high-net-worth individuals.
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Tax-Free Gifts: The article encourages readers to feel good about taxes by emphasizing that smaller, tax-free gifts don't require additional reporting or taxation. This reassures individuals that everyday gift-giving occasions are generally not a source of tax concerns.
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Transparent Reporting: The overall tone of the article suggests a commitment to transparent reporting and simplifying the tax-filing process. It aims to alleviate concerns about missing information and reassures readers that they can report their regular income without undue complications.
In conclusion, the article provides accurate and practical information about gift taxation, using clear language to demystify a potentially confusing aspect of tax law. This aligns with my extensive knowledge of tax matters, ensuring that individuals can approach their tax filings with confidence and clarity.
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