People frequently exchange gifts in their day-to-day lives. However, the question of taxation on gifts is quite a silent one as most people do not ever think much about the possibility of taxation on gift items. The truth of the matter is that gifts are taxable but under certain circumstances. Most countries have limits to which gifts become taxable and the conditions under which specific gifts may attract tax. For starters, countries such as the U.S have yearly limits up to which a donor cannot exceed in gifts given to a single recipient. In almost all countries across the world, the donor is always the one liable to pay tax on the gift he/she gives.
What are the rules governing gift tax?
Before we indulge in the rules that govern gift taxes, let us try to understand the true definition of the term gift. A gift is considered as any as any direct or indirect transfer of any thing of value to anther individual without the return of anything of equivalent value to the donor be it in terms of work done or monetary value of the awarded item. Basing on the definition of a gift, different governments have specific rules governing gift taxation. The rules are geared towards distinguishing circumstances surrounding gifts such as the origin, the value, the status of the gift and form who to who.
In cases of gifs coming from across the borders of some countries, different tax rates may apply. The person giving the gift and the person receiving the gift will also determine whether or not the gift attracts tax and at what rate. Take the case of gifts between spouses for example; if a spouse happens to be residing in a different country, the U.S tax rules will dictate some limits to the value of gifts that he/she can be given without being taxed within one year.
How the annual tax limit works?
The annual tax limit applies to very donor per year. Specific questions may be asked regarding the cases of two parents giving a gift to one person. Under such circumstances, every parent is entitled to his/her own annual tax limit. This means that if the annual tax limit is $10,000, then the two parents combined can give up to $20,000