We don’t want to come across as the Grinchhere. Gifting is a time-honored tradition during the holiday season, and we’re certainly not going to stand in the way of the gifts under your tree this time of year. However, we do want to spread caution surrounding high-value gifts for individuals and all gifts to employees.
The IRS is always watching. They might not know when you are sleeping, but they’re certainly going to know when you’re giving taxable gifts – and they want their cut.
Individual Gifting Exemptions
For individuals, there’s far more leeway from the IRS when it comes to gifting. The gift tax exemption for individual recipients was $16,000 for the fiscal year 2022 and will go up to $17,000 in the fiscal year 2023.
This means if you made a gift of cash or an asset that has a total value under $16,000 you have no federal tax obligations on those assets. If you will have to report the amount that exceeded that number. For example, if you decide to shock your child this Christmas with keys to a $30,000 car, you will have to report a $14,000 gift to your child for 2022.
This becomes even more expensive for the recipient when you consider situations where parents or grandparents decide to give more expensive assets like the family home. Instead of rushing to turn over property as a gift, consider placing it in a trust to be turned over to your beneficiaries after you’ve passed away to avoid incurring gift taxes for the recipient(s). There are also more complex trusts you can implement, like a Grantor Retained Annuity Trust.
Employer to Employee Gifting
The IRS handles workplace gifting strictly. There are no gift tax exemptions for gifts from employer to employee because the IRS doesn’t treat them as gifts – they treat them as income.
The value of any gift an employer or manager provides to an employee will be considered additional income that must be reported on the employee’s W2 form. Companies can be tempted to reward employees, and it’s certainly important to recognize hard work.
A gift from an employer to an employee can be considered a gift in rare circumstances. In Commissioner v. Duberstein, 363 U.S. 278 (1960), the court ruled that a “gift” must come from “detached and disinterested generosity” and out of “affection, respect, admiration, charity or like impulses.” So, if the gift is made on a more personal level and not related to your work as an employee then you can refer to the section above on individual gifting exemptions when reporting to the IRS.
The Law Offices of Tyler Q. Dahl Isn’t Against Gifting
We stated it at the beginning: we’re not the Grinch. We aren’t standing firmly against gifting, but it’s imperative that businesses and individuals alike are aware of the tax implications of gifting. Any failure to properly report to the IRS can result in IRS agents coming down your chimney (figuratively) to get the money they’re owed.
Our team can help you navigate the nuances of the tax code, led by Attorney Tyler Q. Dahl who has his master’s in tax law. Contact us for a firm dedicated to helping businesses through the formation, growth, and succession stages of your business.
Dahl Law Group
