While most adults are keenly aware of income taxes and income tax returns, there is a lesser-known type of tax return that may be required for certain individuals. As the name implies, income tax returns are used to track income that individuals or corporations receive and determine the correct amount of tax related to that income. However, in certain situations, making a gift from one individual to another can be taxable as well, or at the very least may need to be reported to the IRS. In such cases, the IRS requires that a gift tax return be filed. A gift tax return is entirely separate from an income tax return, and they have no relation to one another. If a gift tax return is required, it is filed on the behalf of the donor (the individual who makes the gift), rather than the recipient (the individual receiving the gift).A vast majority of gifts are not taxable and do not need to be reported. Gifts to spouses, tuition or medical expenses paid for someone else, or gifts to political organizations are explicitly excluded. The IRS sets an annual exclusion amount each year, and any gifts below that amount are not taxable. For 2019, the annual exclusion is $15,000. The exclusion applies to each individual recipient of gifts separately. If any single recipient receives more than the exclusion amount, a gift tax return must be filed. For instance, if an individual gifts $10,000 to one friend, and $14,000 to another friend, there are no taxable gifts because each recipient receives less than $15,000. However, if the individual gifts $10,000 to a friend, and then gifts $14,000 more to the same person in the same year, there is a taxable gift. In this case, $24,000 total was gifted to the recipient, so after the exclusion is subtracted, there is a $9,000 taxable gift. In this case, a gift tax return must be filed with the IRS.
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