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By Tyler s. Hinz, Attorney at Law

http://www.tylerhinzlaw.com/

April 15th is not only the deadline for filing your state and federal income tax returns, but also the deadline for filing gift tax returns via IRS Form 709.

Many people are confused about the subject of gift taxes. While only two states -- Connecticut and Minnesota -- have a state gift tax, there is a federal gift tax you may need to be concerned about. Here are some common myths and the actual truths about gift taxes:

Myth: The recipient must pay taxes on gifts.

Reality: While the gift giver may face taxes on certain gifts, the recipient usually doesn’t. There are some circumstances, however, when that will not be the case. For example, if you receive a bonus from an employer or tips, these may be subject to income tax. If you are gifted property that has appreciated in value since the giver bought it, you receive the cost basis as part of that gift. If you sell the property, you will be liable for taxes on the difference between the sale price and the cost basis (what the giver paid for it).

Myth: A giver must pay tax on gifts of over $10,000 per year.

Reality: The annual gift tax exclusion rate is currently $14,000 (it increases periodically), and you can give gifts of that amount to an unlimited number of individuals each year without having to pay gift tax. If you give to a charity or your spouse, you can give an unlimited amount without incurring taxes. The lifetime gift tax exemption for 2016 is $5.45 million per person and your annual gifts (so long as they are under $14,000 per person) don’t count towards that number.

Myth: Gift taxes can be avoided by loaning money at no interest and forgiving the loan.

Reality: The IRS requires that you treat a loan like a loan, not a gift. You will have to charge a fair market interest rate and put the terms of the loan in writing.

Myth: You can always deduct charitable contributions from your taxable income.

Reality: Charitable contributions must be made to a qualified tax-exempt charity, and must be itemized. You can check the status of your charity on the IRS website with its Exempt Organizations Select Check Tool.

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