5 myths about gift tax laws
Myth No. 1: Gifts are income tax exempt
"Everybody thinks this, and everyone is wrong," says Barry Picker, CPA, with the firm of Picker & Auerbach CPAs based in New York. The real truth: The giver has to pay income taxes on money given away, just as he or she would on any other income.
But this is one case in which it is better to receive than to give: For the person getting the money, it is tax-free.
"If I give my (grown) child $10,000, it has no consequences on their tax return -- it's not income," says Peggy Cabaniss, CFP, president of HC Financial Advisors in Lafayette, Calif., and former national board chair of the National Association of Personal Financial Advisors. "And it's not a deduction for me."
The giver, however, could get a tax deduction if the gift is made to a recognized, registered charity. (And, no, needy relatives don't count.)