Let’s break the gift tax down further. Gifts that have a lower value than the annual exclusion are not reportable. In 2022, the annual gift exclusion is 16,000 USD³. Keep in mind that this threshold is when gifting to an individual recipient in one tax year. Some good news — there is no limit to the number of people you can gift in one tax year. Now, what happens if you do go over this annual threshold for a single recipient? Your obligation lies in reporting these gifts on Form 709⁴. (More good news): In most cases, you will not owe money to the IRS unless you’ve surpassed the lifetime gift tax exemption. In 2022, this limit was set at 12.06 million dollars. Let’s bring this to life with an example. This year, you decide to give five people 18,000 USD each. Though you’re technically surpassing the annual exclusion of 16,000 USD by 2,000 USD per person, you can use the lifetime gift tax exemption to not owe tax. Instead, you’d deduct 10,000 USD from your lifetime tax-free limit. In other words, five times the 2,000 USD you exceeded per person limit. If you do exceed the lifetime exemption, the donor is generally responsible for paying gift tax — which ranges from 20 to 40%. Under special arrangements, the donee may agree to pay the tax instead. It is important to speak with a tax professional if you are considering this kind of arrangement. Sending money from your US account to another country Let’s start with the basics — all money transfers abroad exceeding the 10,000 USD threshold should be evaluated for reporting obligations. The Foreign Account Tax Compliance Act⁵ is a federal law that compels all foreign financial institutions to report foreign accounts and assets of US taxpayers. Furthermore, it requires individuals to report foreign bank accounts and financial assets when they file their US tax return on Form 8938⁶, if they’ve met certain thresholds. A related but separate requirement for reporting foreign financial accounts is the Foreign Bank Account Report (FBAR)⁷, provided you meet the filing threshold. If you hold more than 10,000 USD in total across all accounts abroad, on any given day during the tax calendar year you must file the FBAR. It's worth clarifying as we close this quick section — both the FATCA and FBAR are only reporting tools and don’t inherently drive any tax liability.
- Gifts to your spouse (if they’re a US citizen)
- Gifts to a political organization
- Tuition or medical expenses for someone
💡 Remember, Americans are taxed on their worldwide income, and gains from the sale of a property overseas are considered ‘foreign source income’ by the IRS. |
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