Definition
A gift is a voluntary transfer of property or assets from one person (the donor) to another (the recipient) without any consideration—that is, without the recipient paying or delivering something of equal value in return. Gifts can include cash, physical property, financial securities, or other valuable assets.
Examples
- Monetary Gifts: A parent gives their child $10,000 to help with a down payment on a house.
- Real Estate Gifts: Grandparents transfer ownership of a vacation home to their grandchildren.
- Stock Gifts: An employer gifts shares of company stock to an employee as part of a holiday bonus.
Frequently Asked Questions (FAQs)
1. Are all gifts subject to gift tax?
Not all gifts are subject to gift tax. The IRS allows an annual exclusion amount (e.g., $15,000 per recipient per year) that can be gifted without incurring gift tax.
2. Can gifts affect my income tax?
Generally, the recipient of a gift does not have to pay income tax on the value of the gift. The donor may have to file a gift tax return if the gift exceeds the annual exclusion amount.
3. What is a taxable gift?
A taxable gift is any transfer of property by gift that exceeds the annual exclusion amount allowed by the IRS. The value of the gift over this amount might be subject to gift tax.
4. What is the gift tax exclusion for 2023?
The gift tax exclusion for 2023 is $17,000 per recipient per year. Amounts above this may require filing a gift tax return.
5. How is a gift tax return filed?
A gift tax return is filed using IRS Form 709. It must be filed by the tax due date of the year following the year in which the gift was made.
- Taxable Gift: A gift that exceeds the IRS annual exclusion amount and may potentially incur gift tax liabilities.
- Gift Tax: A federal tax applied to the transfer of property by gift during the giver’s lifetime.
- Consideration: The benefit that each party gets or expects to get from the contractual deal.
Online References
Suggested Books for Further Studies
- The Taxpayer’s Guide to Gifting by William J. Clark
- Understanding the Gift Tax: A Practical Guide by Michael M. Robinson
- Gifts: Family and Philanthropy in Late Antiquity by Brent D. Shaw
Fundamentals of Gift: Business Law Basics Quiz
### What is the legal term describing a transfer of assets made voluntarily without receiving anything of value in return?
- [x] Gift
- [ ] Sale
- [ ] Exchange
- [ ] Barter
> **Explanation:** A gift describes a voluntary transfer of assets without receiving any consideration in return.
### Which form is used to file a gift tax return?
- [ ] Form 1040
- [x] Form 709
- [ ] Form 1065
- [ ] Form 940
> **Explanation:** Form 709 is used to file a gift tax return.
### What is the IRS annual exclusion amount for gifts in 2023?
- [ ] $15,000
- [x] $17,000
- [ ] $20,000
- [ ] $25,000
> **Explanation:** The IRS annual exclusion amount for gifts in 2023 is $17,000 per recipient.
### Is a gift of $10,000 to a friend subject to gift tax under the 2023 exclusion rule?
- [ ] Yes
- [x] No
- [ ] Only if the friend is not a relative
- [ ] Only if the gift is in cash
> **Explanation:** No, because the gift amount of $10,000 is under the 2023 annual exclusion limit of $17,000.
### Who is responsible for paying the gift tax if it applies?
- [x] The donor
- [ ] The recipient
- [ ] Both the donor and the recipient
- [ ] The recipient's guardian
> **Explanation:** The donor is responsible for paying the gift tax if it applies.
### Can gifts exceed the annual exclusion amount without incurring a gift tax?
- [x] Yes, if the lifetime exclusion limit is not exceeded
- [ ] No, they will always incur gift tax
- [ ] Only if reported as income
- [ ] Only if approved by the IRS
> **Explanation:** Gifts can exceed the annual exclusion amount without incurring a gift tax if the lifetime exclusion limit is not exceeded.
### What must a donor do if they give a gift exceeding the annual exclusion amount?
- [ ] The recipient must report the gift on their income tax return
- [x] The donor must file a gift tax return
- [ ] The recipient must return part of the gift to the donor
- [ ] The donor must pay tax immediately
> **Explanation:** The donor must file a gift tax return if they give a gift exceeding the annual exclusion amount.
### Is a gift of a vacation home to a child considered a taxable gift?
- [x] Yes, if it exceeds the annual exclusion amount
- [ ] No, gifts to family members are always exempt
- [ ] Only if it is within the same locality
- [ ] Only if the home is sold afterward
> **Explanation:** Yes, the gift of a vacation home is considered a taxable gift if it exceeds the annual exclusion amount.
### How does one generally record a gift on IRS Form 709?
- [x] By detailing the value and nature of the gift
- [ ] By attaching bank statements
- [ ] By writing a letter of intent
- [ ] By presenting witness signatures
> **Explanation:** Gifts are recorded on IRS Form 709 by detailing the value and nature of the gift.
### Can a corporate entity make a gift under U.S. tax laws?
- [ ] No, only individuals can make gifts
- [x] Yes, corporations can also make gifts
- [ ] Only if it involves stock options
- [ ] Only during special fiscal periods
> **Explanation:** Yes, corporate entities can also make gifts under U.S. tax laws.
Thank you for exploring the concept of gifts and understanding their implications within business law and taxation. Continue to deepen your knowledge with our comprehensive resources and interactive quizzes!
