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Tax on Gifts?

I am receiving a $20,000 gift to start new business. Is there a limit on how much I can receive tax free since it’s a gift? Are tax penalties imposed on additional amounts?

Answer: A personal gift is not includible in the gross income of the recipient, or donee, of the gift; however, gifts exceeding the annual exclusion for gifts ($14,000 in 2013) may be subject to gift tax, which is the responsibility of the maker, or donor, of the gift. Whether a gift is subject to gift tax will depend on the donor’s total lifetime gifts. Under current tax law, gifts made that exceed the annual exclusion for gifts are only subject to gift tax when they cumulatively exceed the donor’s lifetime gift tax exclusion amount which is $5,250,000 in 2013. Even if a gift is not subject to gift tax, if the gift exceeds the annual exclusion for gifts, the donor would still need to file a gift tax return (Form 709) for the year of the gift. You can review IRS information on the tax treatment of gifts at the following websites:

Form 709 and instructions for 2012:

2012 United States Gift Tax Return: irs.gov

Since we do not know all the details of this gift transaction, we recommend that the donor consult his or her local tax advisor to clarify the tax treatment and reporting.

Published: June 13, 2013
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Matt Tarkenton

Matt Tarkenton is Executive Vice President at Tarkenton Companies. He was part of a group that started Renova Partners, a boutique investment bank, and was recognized as a “40 Under 40: Up and Comer” by the Atlanta Business Chronicle in 2009. Matt performs business planning and marketing training for hundreds of professionals across the country, and co-hosts a weekly coaching program on entrepreneurial education. Matt graduated from Princeton University, where he was a member of the 1989 Ivy League Championship Football Team, and received an MBA from Harvard Business School.