Federal gift taxes apply to the donor, not the recipient. The gift tax is the mirror image of the estate tax. Currently each individual can pass on over $5mm at death without estate taxes applying. Any gifts made during your lifetime that exceed the annual gift tax exclusion amount referenced above, get subtracted from that total $5+ million amount that can be passed onto heirs free of Federal estate tax. Mechanically what happens if you give more than $14K to one individual in a year is that you are required to file an annual gift tax return. But the result of filling out the gift tax return is that $0 is owed now (if the gift is less than $5+ million). The calculated amount is simply subtracted from the total amount that can be passed on to heirs without being subject to the estate tax. (all amounts are approximate).
Gifts in excess in annual or lifetime exclusions are taxable to the donor.
Good job John Myers... I see this often where the $14k annual limitation is quoted without further clarification about the "mechanics" of the lifetime maximums. I think many folks limit their gifting to the $14k believing that they will owe tax if they give more. I think that the lifetime gift tax exemption increases to $5,430,000 for 2015.
This is a common question because most of us expect to be taxed on money we receive. But gifts are different. The short answer is "no." If someone gives you a cash gift - or anything else of value - you do not owe any taxes on the gift. Earned income is taxed. Portfolio income is taxed. Gifts are not taxed to you. There are a couple of other ways you can receive money that's not taxed. The most common other non-taxed income comes from insurance proceeds like the payout on a life policy. The previous answers refer to gift taxes which are the responsibility of the giver, but you don;t have to worry about that.
Hi Ken! You can give up to $14K with no tax repercussions for you or the recipient. And, if you are married, you and your spouse can gift-split and give $28K to one person with no taxes due. You can give $14K to more than one person as well. There may be some instances when taxes are payable by the recipient, but that involves much larger dollar amounts and trusts.
Generally, amounts over 14,000 affect your estate/gift tax exclusion amounts (done correctly a couple has an over 10 million exclusion). Hopefully, you have an estate planning attorney to give you detailed information. With my clients we prepare a detailed net worth statement and discuss all ramifications to giver and giftee before they meet with their attorney, or possibly their tax CPA.