While giving gifts to your family is a generous gesture, it won't do you any good come tax time. Not only does the IRS not offer any sort of tax deduction for gifts to family members, but you could also owe extra taxes for giving away too much. If your total gifts are too valuable, you'll owe extra money to the government for gift taxes.
Gifts
Even though giving away money and property to your family reduces your wealth, the IRS won't make it up to you with a lower tax bill. The only way to deduct a gift from your taxes is when the gift is made to a qualified charity like a church, hospital, school or other organization run for the benefit of others. Family members don't meet this definition so you'll have to make your gifts without the helping hand of a deduction for your taxes.
Gift Tax
If you really break the bank on the gifts to your family members, you might owe extra money in taxes. You can give away $13,000 per year each to as many people as you want, tax-free. If you give someone more than $13,000 worth of property in one year, you've made a taxable gift. The total value given over $13,000 for the year is the taxable gift. However, you are still a long way from owing taxes. Over your lifetime, you are allowed to exclude up to $5 million worth of taxable gifts from your taxes meaning you can make up to $5 million worth of taxable gifts throughout your life without owing any taxes. The IRS will charge all taxable gifts over the $5 million lifetime limit at the gift tax rate of 35 percent.
Gift Tax Return
It is your job as the gift donor to report your gifts to the IRS and pay any necessary taxes. Even if you know you won't owe any taxes, you still need to report all taxable gifts over the $13,000 annual limit to the IRS. You report taxable gifts on IRS Form 709. If you calculated that you owe gift taxes for the year, you'll need to pay these along with your regular tax return. When you make large gifts to your family, not only do you give away property, but you get stuck with extra tax paperwork to boot.
Gift Tax Exceptions
There are a few types of gifts you can give to your family members without ever owing gift taxes. There is no gift tax on gifts to your spouse, so you can give her all the property you want without owing extra taxes. In addition, you can pay for the education and medical care of family members without owing gift taxes. When you make these gifts, the payments must be made directly to the school or medical institution. If you don't make a direct payment, the IRS could still slap you with gift taxes on your transfer.
Writer Bio
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.