By Jim Blankenship
While the IRS doesn't care a lot about the sweater you gave to your cousin or the cheese-of-the-month club membership for your granddad, these gifts are always potentially subject to scrutiny. This is due to a little-known tax called the Gift Tax.
Gift Tax is a tax that is imposed on the transfer of property from one individual to another, where full value (money or something of similar value) is not received in return. If that definition spurred a thought about the value of another person's love being "full value" in return think again. The IRS doesn't quantify love as a full value.
A gift tax isn't imposed on every gift, though. In fact, unless you're a very generous giver, you probably won't ever have a gift tax imposed on anything that you give. Here are five points that you need to know about gift taxes.
1. There's an annual limit.
Every person is allowed to give up to $14,000 per year to any person that they wish, and they can give this amount to as many different people as they want to. Up to that amount, the gift tax doesn't apply at all. A married couple can jointly give double the amount, or $28,000, to any person in any year. At this level or below, no tax applies and a Gift Tax return is not required.
2. There's also a lifetime limit.
Above the annual limit, every individual has a lifetime exemption amount that they can give. For 2013 the lifetime limit is $5,250,000, and it rises to $5,340,000 in 2014. So if you give a gift to someone that is above the annual limit of $14,000, the amount is deducted from your lifetime exemption amount. This lifetime amount is cumulative over your lifetime, so if you give your nephew a car worth $25,000 this year, and your cousin a plot of land worth $50,000 next year, you'd deduct the annual exemptions ($14,000 from each gift) and then reduce your lifetime exemption by $11,000 for the car and $36,000 for the land so that at the end of 2014 you have $5,293,000 left in your lifetime exemption. A Gift Tax return is required to be filed when you have gifts above the annual limit in any year.