What are the rules about gifts?

Dear Tax Talk,
I have a question about charitable donations. I pay for my retired parent’s electric bill (and have been for several years now), which averages between $1,200 to $1,500 per year. Can I use this as a tax-deductible charitable donation? If so, will my father be affected when he files his taxes, and could this be considered as “extra income” on his part?

Also, I helped pay for my sister’s funeral expenses in 2014 in the amount of $1,900. Is this deductible as a charitable donation?

Thanks for any info!
— Ray

Dear Ray,
Your generosity to your family members in helping with expenses will not result in a tax deduction for you. To qualify for a charitable deduction, the payments must be made to a qualified organization. If you are uncertain regarding other charitable donations, the IRS maintains a list of charities, nonprofits and exempt organizations on IRS.gov. Additionally, your father will not need to report your assistance with his utility bills on his tax return as other income.

There seems to be some confusion among taxpayers regarding the term “gifting” when it comes to tax returns and the IRS. Here’s how it works: When individuals gift money to a qualified charitable organization, such as a church or other nonprofit group, they can generally deduct it on Schedule A as an itemized deduction. A gift to a family member, such as paying for your father’s utility bills, is not deductible for you. However, if you were to give your father more than $14,000 per year, you would need to file IRS Form 709, U.S. Gift Tax Return, to notify the IRS.

So why does the IRS want to know this information? It has to do with the estate tax and gift tax, which are taxes on the right to transfer property above certain amounts during a person’s lifetime or at their death. For individuals who die in 2015, the estate threshold is $5.43 million.

Thanks for the great question and all the best to you and your family.

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