You hear it everywhere -- “Your gift is tax-deductible!” -- but that isn't always true. Everyone looks for a break on their taxes – especially couples just starting their new life together. That said, the Internal Revenue Service doesn't play around when it comes to deducting gifts, no matter who they go to or what they are for.
Can Donated Gift Cards Count on Taxes?
They're worth a $25 per person break as long as you're a small business owner and you gave them out to your staff or clientele. The IRS makes it tough to claim them in almost any other situation. You can't just buy gifts cards, donate them to your favorite charity and grab a tax break for the gift card values. You have to find out what the charity bought with the gift cards, and deduct that from Uncle Sam's annual "salary." You'll need to get the receipts too.
How Much Money Can You Gift to Your Family Members Each Year Regarding Taxes?
You can give as much money as you want to family members, but be prepared for two IRS hits. You can't deduct the gift, and you'll have to pay taxes on it if it exceeds the annual IRS gift tax limits. Married couples can help out a family member for up to $26,000 per year as of 2012 -- that's because you can both gift $13,000 before having to pay the tax. The gift tax doesn't apply if your spouse gets the money, unless the spouse isn't a U.S. citizen. The taxman places a $136,000 cap on those gifts. You will have to figure out the right tax, or the person you're trying to help may hear from the IRS.
Can a Monetary Gift to Your Child Be a Tax Deduction?
Monetary gifts designated to any individual are not tax deductible, per IRS Publication 17. Money is only a tax deduction if it's given to a qualified nonprofit organization. The IRS gives this paraphrased example: Should you donate money to the Red Cross for hurricane relief, you may deduct the donation on your income taxes; should you donate the money to the Red Cross for hurricane relief for a specific individual, you may not deduct the donation from your income taxes.
Can You Offset Capital Gains Tax With Gifting to Heirs?
No, because a capital gain on an investment means more money in your pocket and the IRS wants its share. This makes sense when you consider a capital gain is essentially income from when you cash in an investment for more than its initial purchase price. You can temporarily offset the tax if you give assets to heirs, but not without some restrictions. If you give away property, for example, you've got to prove that was your intention all along. On top of that, you'll still have to pay the appropriate gift tax if the value exceeds the annual limitations.
Can an Adult Child Gift Parents Money and Use It as a Tax Deduction?
You might if the money goes to their vital care and you can claim them as a dependent. If your parents (or stepparents) can be designated as qualifying relatives, you can try to get the child or dependent credit for whatever money you give them to survive. Your folks can't make more than $3,700, which applies to any dependent. It doesn't matter if your parents live you, but you will have to prove you pay for at least half of their annual living expenses. That can include food, shelter and medical care.
- Internal Revenue Service: Publication 526 (2011), Charitable Contributions
- Internal Revenue Service: Publication 17 (2011), Your Federal Income Tax
- Internal Revenue Service: Instruction for Form 709 (2011)
- Internal Revenue Service: Ten Important Facts About Capital Gains and Losses
- Internal Revenue Service: Publication 950 (10/2011), Introduction to Estate and Gift Taxes
- Internal Revenue Service: Publication 501 (2011), Exemptions, Standard Deduction, and Filing Information
- Internal Revenue Service: Publication 503 (2011), Child and Dependent Care Expenses
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- Tax Consequences of Giving a Business to a Family Member