In some countries, when people give a large enough gift or transfer property to others while they are still living, they may need to pay a gift tax. In the US, for instance, the Internal Revenue Service (IRS) has specific rules about the amount that can be given to someone else without incurring this tax. There are also guidelines in IRS publications for what is considered a gift, and for the amount of tax that will be incurred based on the value of the gift.

Where gift tax rules apply, a person may be allowed to give gifts of a certain amount before the beneficiary has to pay a gift tax. In IRS law for instance, you can give an individual a gift of about $13,000 US Dollars (USD) per year without paying a gift tax. A husband and wife may both give the same person this gift, giving a total of $26,000 USD per year. This amount is subject to change, so it is advisable to check tax law for current allowable amounts.

The person giving the gift usually pays the tax, though there are circumstances where the person receiving the gift can arrange to pay the tax instead. There are also some gifts that aren’t considered taxable. Currently the IRS does not consider payment of tuition or medical expenses, provided these are made directly to the facility charging the money, as subject to a gift tax. Other exclusions are gifts to political organizations and gifts to a spouse. When giving a gift to charity, the giver may not only be exempt from paying a gift tax, but may also be able to take a tax deduction, provided the charity is legal and recognized.

Some people choose to avoid gift taxes by creating trusts instead, which may lower the amount of taxes owed on any gifts made. The amount owed when transferring large amounts of money or property varies, and if it is a sizable gift, it is recommended to discuss the issue of gift taxes or trusts with an knowledgeable tax attorney, financial planner or accountant.

It’s a common misconception that the person receiving the gift must pay the gift tax. When selling a gift, such as property, some taxes may be owed, particularly if the property has been in possession for a few years. When the gift is very large, it is a good idea to research tax obligations regarding it, now or in the future. However in most cases, it’s the donor who pays the initial taxes on the gift.