You may be wondering if the gifts you receive from family and friends will be subject to income tax. Generally speaking, no – that is not necessary for these taxes! The reason being because they are considered “gifts” instead of income. However, there are some specific circumstances under which gifts may be subject to taxes.

The first thing to understand is the difference between a gift and income. Income is money or property that is earned through work, investments, or business activities. A gift, on the other hand, is money or property that is given to someone without expectation of anything in return.

When it comes to gifts, the IRS has a gift tax that applies to gifts over a certain value. For tax year 2021, the gift tax exclusion amount is $15,000 per person, per year. This means that if you give a gift to someone that is valued at less than $15,000, you do not have to pay any gift taxes on it. However, if the gift is valued at more than $15,000, you will have to file a gift tax return and may have to pay taxes on the excess value.

It’s important to note that the gift tax applies to the giver, not the recipient. So even if you receive a gift that is valued at more than $15,000, you do not have to pay taxes on it. The person who gave you the gift is responsible for paying any gift taxes that may be owed.

Another important thing to consider is that the gift tax exclusion amount is cumulative. This means that if you give multiple gifts to the same person in a year, and the total value of those gifts exceeds $15,000, you will have to pay gift taxes on the excess value.

It’s also worth noting that there are a few exceptions to the gift tax rule. For example, gifts given to a spouse or to a political organization are not subject to the gift tax. Additionally, you can give up to $11.58 million in gifts over your lifetime without ever having to pay gift taxes.

In summary, gifts are not subject to income taxes. However, gifts over a certain value may be subject to the gift tax. The gift tax exclusion amount for 2021 is $15,000 per person, per year. The gift tax applies to the giver, not the recipient, and there are a few exceptions to the rule. If you have any questions about whether or not a gift is subject to taxes, it’s always a good idea to consult with a tax professional.