Have you ever wondered what a gift tax is? Does it make sense to pay taxes on gifts?
The Gift tax was introduced by the Congress government in the year 1932 to rapidly generate revenue in the period of the Great Depression. To make it appealing to the wealthy people, they kept the Gift tax rate 25 percent less than the estate taxes. at that time.
The plan worked out well for the Congress as they were able to prevent property owners from transferring their wealth to someone else(most probably their children or relatives) to avoid paying the estate tax. The tax exemption at that time was $50,000 but now, in 2019 it has reduced to $15,000 per recipient.
Here are a few interesting things you would want to know about the Gift tax in the United States.
1. Not all gifts are taxable
To your relief, not all gifts you give or receive are going to tax. Any gift under $15,000 is tax exempted. You can present any number of gifts. The only condition is, the gross total of your gifts worth should be less than $15,000.
Secondly, you can also donate a certain amount to the political organization, social welfare organization, or charitable organization without worrying about Gift tax. The IRS does not levy Gift tax on money, items, or property donated to help the needy.
2. The gift tax does not apply to a non-resident alien
When it comes to a non-resident or someone on a work visa, the Gift tax rules begin to appear a bit complicated. The screening process is also is far more stringent compared to the one with Income Tax. A non-resident person has to pay the Income Tax no matter what, but he/she may or may not have to pay tax on the gifts he/she sends or receives. A lot depends on whether the real estate property received as a gift is in the US or not. Also, there is no gift tax on shares in US corporations.
3. Gift tax can be avoided with Split payments
Split payment is a method of payment with which you can split a large sum into multiple small payments. It can be done to make life easy as paying a large sum is not everyone’s cup of tea, or, done to avoid Gift taxes. As already stated above, you won’t be charged a tax on gifts below a total of $15,000 annually. So, to present a gift above $15,000, you can pay $14,999 right now and the rest in the next year.
For a wealthy person, there are a ton of ways to avoid paying Gift tax. However, the methods they use to get away from paying this kind of a tax are so complex and sophisticated that most journalist news reporters find it difficult to grasp and as a result, don’t present them in front of common people. Some rich people also hire a progeny(a child or an offspring).