When is a Gift Tax-Deductible? | USTaxAid

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When is a Gift Tax-Deductible?

Written by Diane Kennedy, CPA on January 23, 2023

Recently when I was asked, “When is a gift tax deductible?” My first reaction is, “Tax deductible? You’re lucky if you don’t have to pay tax on the gift!”

The fact that I receive this question frequently indicates that I need to talk about gifts and taxes.

Tax Deductible vs Tax-Exempt

If an expense is tax deductible, that means you can take a tax deduction against your taxable income. A tax deduction reduces the amount of taxes you pay.

Tax-exempt usually applies to some form of cash or property you receive. You pay tax on the receipt of it or it is tax-exempt.

There is a mandatory gift tax unless it meets one of the following exceptions:

  • Gift to your spouse,
  • Gift to political organization,
  • Paying for another person’s medical or educational expenses, or
  • Any gifts that are under $16,000 in total per person for the year.

If you gift more than $16,000 in a year and you do not meet one of the other exceptions, it is possible to avoid gift tax by using your lifetime gift exclusion. Your tax professional will file Form 709 to use up part of the $12.04 million of lifetime gift exclusion currently allowed.

So far, we have been talking about avoiding gift tax. If you end up not meeting one of the exclusions and do not file Form 709, the giver will need to pay gift tax.

The recipient does not have to pay gift tax.

Can You Get a Tax Deduction for a Gift?

There are only a few types of gifts that qualify as deductions. These are:

Charitable donations that are made to registered nonprofit organizations in good standing.

Business gifts that your business buys. This could include promotional gifts such as pens, t-shirts, hats, etc., and  de minimus gifts up to $75.

Got a tax question? Here is how to get your tax question answered.

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