Weddings! They’re a day many of us dream about from a young age and one of the great benefits of the big day, other than declaring your love to your soul mate in front of all your friends and family, are the gifts.
If you think you’ve ever spent a long time unwrapping gifts before at a birthday party or at Christmas, it’s nothing compared to what you’ll receive at a wedding.
The only downfall can be when it comes time to write all those thank-you notes. As appreciative as you may be, it doesn’t stop your hands from aching as you write your 100th ‘thank you for your generosity.’
Luckily, the IRS isn’t someone that you’ll need to write to too. The receiver of the gift isn’t responsible for the tax – it’s the giver.
And really unless you’re lucky enough to receive a present that is of exceptional value, the giver won’t need to pay any tax either.
No Tax For Gift Recipients
Usually, the tax liability for gifts is with the person who gives the gift and not the person who receives it.
The IRS states that when money or property is exchanged between two parties it is the individual donating that is responsible for the tax.
So the good news for any betrothed couple is that no matter how extravagant your wedding gifts may be, they won’t be classed as income by the IRS and so they won’t increase how much tax you are obliged to pay.
Tax Exclusions For Generous Gift-Givers
If you are looking to give a generous gift to a couple who are about to be married, you’ll be relieved to know that there are very few circumstances where you’ll need to actually pay tax.
You won’t pay tax on any gifts valued up to $15,000 from an individual or $30,000 for a married couple. And technically you can give this amount to each individual party of the new couple.
So a married couple could gift each partner $30,000 and still not be taxed.
If you are really very generous and want to gift something over this value then you’ll need to fill out a 709 tax form.
But even then it is unlikely that you will need to pay tax for the gift.
Selling Wedding Gifts
We’ve all been there, even with a gift registry, you can still find that you come away with some items that you might not want to keep.
Or perhaps someone has gifted you an antique that you have learned is actually worth quite a bit of money and you want to sell it.
On these occasions, you will need to report the proceeds as taxable income. So say you sell an antique that was purchased at $100 but you sell for $8000. You’d need to report a profit of $7900.
General Gift Tax
Annual exclusion is actually what keeps most people from being exempt from paying any gift tax. So what is annual exclusion?
Well, it’s where any given person can give someone up to $14,000 worth of gifts throughout the duration of the year and not have to pay tax.
It is only once you exceed this value that gift tax will begin to apply.
And this isn’t a blanket value for everyone that you may purchase gifts for, it’s per person. So for each person that you buy gifts for you’ll have a $14,000 limit before you need to pay any tax.
A gift to a spouse is always tax-free so long as your partner is a U.S citizen.
If they are not a US citizen then there will be a limit to the number of gifts you can give without paying taxes, however, this is still a fairly large number ($147,000) so it’s unlikely that it would cause an issue.
Exclusions may also apply to some gifts such as medical and educational expenses. As long as either of these are paid directly to the health care provider or the school you will not be subjected to gift tax.
However, if you decide to give the value in money for the person to pay off the expenses themselves it may be classed as a gift and you may need to be taxed.
Any gifts that are paid directly to political organizations are also not taxed.
Penalties For Evasion
If you knowingly fail to report a taxable gift that is known as tax evasion. This is not something you want to be caught doing as there are hefty penalties.
If you are caught evading tax you will have to pay the amount owed plus interest, and you might also even have to pay a civil fraud penalty that can be up to 75% of the tax that was due.
The criminal penalties for tax evasion can range up to $250,000 in fines and even five years in prison. So it’s really not worth it.
Since there can be such strict penalties for tax evasion, it is always important to check whether or not you need to declare certain things to the IRS.
However, if you’ve recently got married, declaring your gifts isn’t something that you’ll need to worry about.
This is good since anyone involved in a wedding knows you already have 101 other things that need your undivided attention.
So it’s one thing less to stress about. You won’t need to worry about tax as the receiver of the present, it’ll be up to the giver to report anything extravagant.
And even then it’s unlikely that they’ll pay tax unless you’ve received a really really really generous gift.
The only time that you’ll need to worry about the tax on your gifts is if you decide to sell any of them, in which case you’ll need to let the IRS know of any profits you’ve made.