Dear Dr. Don,
Is there a tax on giving money to a relative?
-- Johnny Jimmy
Yes, there is. Known as a "gift tax," it is paid, in most cases, by the person who made the gift. The person receiving the gift does not have to pay income tax on the value of the gift received. IRS Publication 950, Introduction to Estate and Gift Taxes, provides more details.
One easy way to finesse the gift tax is with a gifting program. There's no gift tax due on gifts below what is known as the "annual exclusion limit." For 2009, the annual exclusion limit for gifts is $13,000.
Married couples can split gifts, in effect doubling the annual exclusion. So, a husband and wife can gift $13,000 for a combined gift of $26,000.
Work with your tax professional or an attorney specializing in estate planning if you need more information about gift taxes or in planning your estate.
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