Would you like to earn credits and deductions to reduce your income tax obligations? The Internal Revenue Service offers a variety of ways in which you can do it. Unfortunately, giving tax-deductible gifts to family members isn’t one of your options for minimizing taxes.
You’ll need to be careful about giving cash and other valuable gifts to family members since it could subject you to gift taxes. The IRS has created a gift tax limit that may prevent you from providing the kinds of gifts you would like to give to those in your family. The gift tax is in place in part to control the great wealth transfer that is taking place all across the country.
Discover more about the tax implications of giving gifts to family members below.
Giving tax-deductible gifts to family members isn’t allowed under the IRS’s current rules and regulations. The only gifts you can give that are tax deductible are the ones you give to qualified charitable organizations. These organizations are typically designated with special tax codes like 501(c)(3).
If you aren’t making a donation to an organization like this as a gift, tax return deductions aren’t available. You won’t have to worry about including gifts to family members on your tax returns at all unless you’re required to pay gift taxes.
While you can’t deduct gifts given to family members to get tax relief, you’re more than welcome to provide them with gifts, including some large gifts, without being subject to the gift tax. However, if your gifts to family members are worth more than a certain amount of money, this is when the gift tax will come into play since you can’t give tax-deductible gifts to family members.
Gifts can include cash, real estate, and other personal possessions. As long as your gifts aren’t worth over $18,000 in 2024, the gift tax won’t apply in your situation.
The gift tax will only affect those who give gifts to family members that exceed this amount. In most cases, donors, rather than donees, are responsible for paying this tax. The gift tax rate ranges from 18% to 40% depending on how far over the $18,000 threshold a gift to a family member is.
The annual gift tax exclusion of $18,000 is only one exclusion you should keep in mind when giving gifts to family members. The lifetime gift tax exemption should also be on your radar.
The lifetime limit for giving gifts to family members currently sits at $13.61 million. This is the same number the IRS uses for the federal estate tax.
If you plan to give family members valuable gifts throughout your life, monitor your gift-giving and aim to keep it under this threshold. A tax professional can help you do this and discuss giving tax-deductible gifts to family members in greater detail.
Giving tax-deductible gifts to family members isn’t possible, but there are many other ways for you to earn tax deductions that can reduce your tax obligations. Let Levy & Associates provide an experienced accountant who can speak about your options and ensure you stay within the limits of the law when filing tax returns. Contact us at 877-620-6490 or fill out this form to schedule a meeting with one to review your tax-related questions.
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