What is a Cash Gift Tax?

People ask me quite often if, as someone quite active with cash gifting, there are specific codes or rules regarding a cash gift tax. My answer is always the same and I generally tell someone to check out the IRS publication 950. Now, I am not a CPA nor am I an attorney specializing in tax law, so my advice is not legal what so ever. What I did decide to do was tell people what I do in regards to taxes.

IRS Publication 950

Probably the easiest thing to do is go to the authority on the taxation of gifting, the IRS website itself. If you want to check it out for yourself, go to:  http://www.irs.gov/pub/irs-pdf/p950.pdf

For simplicity purposes, I will summarize the publication. Basically the publication states that most gifts are not subject to the gift tax. This tax exempt status includes those that give the gift and those that receive the gift. The maximum amount per year for the exemption of gifts as of 2009 is $13,000.00 per year.

The following are not considered taxable:

Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year (2009).

Tuition or medical expenses you pay directly to a medical or educational institution for someone.

Gifts to your spouse

Gifts to a political organization for its use, and

Gifts to charities

While this publication provides information concerning exemptions for gifting, many people have stated that once a person starts or joins a gifting program then they are no longer exempt from the tax. Many people involved in the cash gifting activity refer to publication 950 as the holy grail of their tax exempt status, but if you promote this activity the way you would promote a traditional business, I would be wary of not paying any taxes. There is a fine line here, but I can tell you, if you have to question it this hard, then you may want to go ahead and pay taxes as you would with any business with a tangible product.

Cash gifting is a very popular activity and while many are trying to demonize this activity, I still believe in the program quite a bit. I love the simplicity of it and if you learn how to market online effectively then gifting can be an excellent way to affect your financial life beneficially plus there are many intangible benefits that I have experienced as well. As far as a cash gift tax is concerned, my best advice is for you to seek advice from your CPA or tax attorney. Remember also that if you are going to join a gifting program that you may be doing this for some time to come and you do not want a run-in with someone like the IRS. It’s sort of difficult to tell people that you are bringing in 10K+ a month, but don’t pay taxes…I just don’t recommend it. In the end, like all things we make choices on as adults, it’s up to you.

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