The Gift Tax, which is the other part of the Unified Gift and Inheritance Tax, is levied on the transfer of inheritances or donations during the life of the donor. This tax is the responsibility of the donor.
Factors that distinguish inheritance and gift tax
Estate tax is imposed on the value of the taxable estate transferred after the death of the owner. By contrast, gift tax applies to the transfer of property during the lifetime of the donor. This was introduced to prevent estate tax evasion through the transfer of property just before death.
In addition, the effective rates applicable to gift and estate taxes are different, some gifts are included in the estimate of the taxable estate, and the amount of credit available for each tax varies.
What gifts are subject to gift tax
Gift taxes are paid on all free property transfers. In addition, they are also required if certain sales or exchanges of any kind of property are made, which are not in the normal course of business of that person, where some money has been paid, but it is less than the value of what that has been sold or exchanged.
What can be excluded
Typically, the following may be excluded from the scope of gift tax:
Can I handle this aspect on my own?
If the amounts you’re giving away are small, you can usually manage the paperwork and calculation of excise taxes on your own. However, for complex and large gifts, you can retain the services of a professional attorney or CPA who specializes in gift and estate taxes.
What are the forms to fill out?
The relevant form for these taxes is Form 709. All gift taxes must be calculated on a calendar year basis. Therefore, all reportable gifts made during a calendar year must be reported on a Form 709. Gifts made in different years are reported on the corresponding year’s Form 709, but remember; Only one form needs to be submitted per calendar year, regardless of the number of donations made during the year.