Straight Info on Gift Taxes

“Feeling gratitude and not expressing it is like wrapping a present and not giving it.”—William Ward

Confusion reigns whenever the subject of gift taxes comes up. The issue is an important one since gifts of money are more likely to be made among families and friends in these troubled economic times.

Many taxpayers think, incorrectly, that the person who receives the gift pays taxes on it. Actually, all gifts, no matter how large, are tax-free to the recipient. The giver, however, must pay a gift tax on any amount over $12,000 given to any one person in one year. If you’re married, both you and your spouse can each give away up to $12,000 a year, increasing the amount you can give to each recipient to $24,000.

Giving away money in $12,000 lump sums to avoid paying gift taxes is also a good strategy to help reduce the size of a taxable estate. However, a recent survey shows that two-thirds of older taxpayers, for whom estate taxes are an important issue, don’t take advantage of this tactic. Some experts believe that’s because many older people are afraid of outliving their money.

$2,324—Average income tax refund in 2007.(USA Today, 2008)