What Is Gift Income?

Malcolm Tatum

Gift income is any type of revenue that is received but not earned through some type of effort on the part of the recipient. The income may be cash or also some type of good or service that is extended without any commitment on the part of the recipient. Depending on the type of gift involved, the receipt of income may be subject to taxes. In situations in which the recipient is receiving some type of financial assistance from other sources such as a government welfare program, it may also be necessary to declare the value of the income in order to comply with the requirements for continued participation in the program.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

In terms of a legal definition, it is not unusual for revenue agencies to define what does and does not constitute gift income, which in turn means that even though cash or in-kind gifts may be received, those assets may or may not be considered taxable. Tax laws in some nations require that if a creditor chooses to write off a debt, the amount of that write-off is considered taxable income, regardless of the amount. Other nations require that the amount of the write-off be over a certain amount before it must be reported as income and eligible for tax assessment.

The gift income regulations are normally structured to work in tandem with various types of estate taxes and any type of inheritance earnings that a beneficiary may receive. In situations in which the beneficiary is not assessed an inheritance tax, there is some chance that the inheritance may be considered gift income, even if the gift is in the form of some type of asset like real estate or jewelry rather than cash. Only by working with a financial professional such as an accountant or an estate planner is it possible to determine when an inheritance is classed as gift income and is subject to taxation.

For those who choose to extend gift income to others, there are usually specific regulations that limit the amount of monetary gifts that can be extended to a single recipient during a given tax year. Depending on how the regulations are crafted, the benefactor may be able to extend up to a maximum amount to several recipients, or that maximum amount may encompass the total amount of income that he or she can disburse collectively to all recipients. This is particularly true in nations that allow some type of tax break for the extension of income as a gift to someone outside the immediate family, ensuring that the extension of those gifts are less likely to be used as a means of evading the payment of taxes due to local, state, or national revenue agencies.

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