---- — Offering to help a friend or family member in need financial assistance is a thoughtful, selfless gesture, not unlike donations made to charitable organizations. But while the intentions behind each offering may be similar, these two types of gestures are not very similar in the eyes of the law.
Individuals who make contributions to nonprofit organizations can usually deduct these donations from their personal taxes, but similar gifts given to family and friends are not subject to the same tax rules. In fact, if certain guidelines are followed, such gifts may prove problematic down the road.
Gift taxes in the United States are not paid by those in receipt of the gift, but rather by the person doing the giving. Gift taxes were created to prevent people from avoiding the federal estate tax. Generally speaking, the gift tax only impacts the very wealthy. A person in the United States may gift up to $13,000 in a given year without paying any tax. Married couples may gift $26,000 jointly. Furthermore, there is a lifetime limit of $1 million in total gifts.
Many people who want to give financial gifts to children or other family members in need worry about the potential tax implications of such good deeds. But many of these worries are unfounded. When giving a substantial gift, people must file a Form 709 with the Internal Revenue Service no earlier than January 1 and no later than April 15 the year after the gift is given.
It is always advisable to consult with an accountant or tax professional. He or she is knowledgeable in current tax laws and will be able to guide you accordingly. Tax regulations are always evolving, and it is the business of an accountant to keep abreast of any changes from year to year.