The end of the year is a season for gift giving. It also marks the deadline for an often misunderstood kind of yearly gift giving, endorsed by the IRS.
I’m not talking about donations to charities, but rather gifts from one person to another. For example, parents decide to give money to a grown child who needs a down payment for a house. Or perhaps a sister wants to help out a brother who’s struggling financially.
For the year 2009, any person can give up to $13,000 to any other person without risk of having to pay a gift tax.
How an “IRS approved” gift works
What that means in practical terms is that a married couple, for example, could each give $13,000 to each of their two children. Thus each parent then could give as much as $26,000, for a combined total of $52,000 in 2009. Each child could receive as much as $26,000.
If the parents are feeling generous, they could also each give up to $13,000 to the wife’s unemployed brother. However, giver and receiver don’t have to be related.
By giving no more than the $13,000 limit, the giver avoids the possibility of having to pay a gift tax and the need to report the gift to the IRS.
One of the nifty things about the gift tax exclusion is that neither the giver nor the recipient has to report a gift on income tax returns. You can be generous and avoid the paperwork. Just remember that if you don’t make a gift by December 31, the opportunity for 2009 goes away.