What Constitutes a Gift?
A gift is when someone gives to someone else something of value (cash, property, use of property, etc.) without expecting anything in return. Additionally, if you were to sell something you own for considerably less than its value, then this could be considered a gift. For example, if you own a car worth $15,000 and you want to sell it to your brother for $10,000 as a favor to him, the $5,000 difference could be considered a gift.
Annual Gift Tax Limitations
Before you start tallying up every dime you gave to your niece as a present, don’t worry about it. Most Gifts to friends and family will fall below the annual threshold for taxable Gifts.
For the 2012 tax year, a taxpayer can give up to $13,000 per person per year without being taxed on the gift. For example, you could give Friend A $13,000, Friend B $13,000, and your sister $13,000 every year and never be taxed on your Gifts. Network Gifting is designed around these principles. For example, you could receive $50,000 in Gift and never pay a cent in Taxes. Why? Well, you are not receiving more than $5 from one individual. Plus, only the person giving the gift is required to pay a gifting tax if it goes over the yearly threshold of $13,000. Seeing as how they are only giving you a gift of $5, this leaves them clear and free of any tax issues.
However, if you gave $13,000 to Friend A, but $14,000 to Friend B, you would then be taxed on that $1,000 gift to Friend B. (So, as you can see, unless you’re regularly throwing around five-figure gifts, the gift tax limitations will exclude the gifts most of us give and receive).
How To Avoid The Gift Tax
The best way to avoid the gift tax is pretty self-explanatory: do not give gifts that exceed $13,000 per person per year. With Network Gifting you only give a Gift of $10 to the site and you only receive a Gift of $5 from each person who signs up under you. This is no were near reaching the limit. You could receive a total of $100,000 total in Gifts and not have to pay a cent of taxes because you are not receiving more than the state tax limit from each individual member.
Don’t Be Afraid To Give (Or Receive)
Overall, the gift tax does not affect very many people. So, don’t worry about that $20 you gave to you brother for his last birthday— it won’t be taxed (under current tax law anyway). The same is true if you receive a larger gift from a generous relative…as long as it’s less than $13,000 per year. The gift tax can be easily avoided throughout life just by following certain limitations set out by the government.
Recipient doesn't report income
Gifts you receive aren't considered income. It doesn't matter how large they are. You don’t report them on your income tax return in any way.
Now that you have all the facts about the Gift tax, don’t be afraid to become a Gifter and enjoy .