taxes

gift tax

A federal tax on transfers of money or property to another person when the gift exceeds the annual exclusion ($18,000 per recipient in 2024), paid by the giver.

Example

“She gave $18,000 to each of her three children — exactly at the annual exclusion limit — without triggering the gift tax.”

Memory Tip

GIFT TAX = yes, the IRS taxes large gifts. Stay under the annual exclusion ($18K per person).

Why It Matters

Understanding gift tax helps you plan major financial transfers to family members and loved ones without unexpected tax consequences. Knowing the annual exclusion limit allows you to give strategically and preserve your estate for inheritance purposes.

Common Misconception

Many people mistakenly believe that the recipient of a gift must pay the gift tax. In reality, the person giving the gift is responsible for paying any tax owed, not the person receiving it.

In Practice

If a parent gives their adult child $25,000 in 2024, the amount exceeding the $18,000 annual exclusion means $7,000 is subject to gift tax reporting. The parent would need to file a gift tax return and potentially owe taxes on that $7,000, depending on their lifetime gift and estate tax exemption.

Etymology

GIFT (something given without payment) TAX. A TAX on GIFTS above certain thresholds.

Common Misspellings

gift-taxgft taxgift taks

Related Terms

estate tax estate planning

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