5 Ways to Give a Monetary Gift

ByG. Dautovic
May 23, 2022

Many of us like to give money as a gift. A monetary gift enables people to spend cash on whatever they choose and can be an excellent option for those saving towards a specific item, experience, or investment. This informative guide will discuss how to gift money and outline the rules for giving taxable monetary gifts.

Ways To Give Money as a Gift

If you want to give money to a friend or family member, there are various options, depending on how much you want to give and how you want to give it. In most cases, you won’t need to worry about paying tax on monetary gifts. Here are some ideas for how to give money as a gift:

1. Cash

It’s very common to give cash gifts for special occasions, like weddings, birthdays, and Christmas. Giving cash might not seem like the most thoughtful option, but the recipient can put your money towards something they really want and enjoy the freedom and flexibility of choosing their own gift.

When you give money gifts, you don’t need to worry about tax unless your contribution exceeds $16,000 per year. If you plan to gift more cash than this, you’ll need to notify the IRS about your donation.

If you’re worried that giving cash comes across as impersonal, there are some straightforward ways to make your gift more thoughtful, including designing a personalized card and envelope for it, putting it inside a piggy bank or customized savings jar, or exchanging it for foreign currency if the recipient is planning to use it for a trip overseas.

2. Gift Cards

Gift cards have become increasingly popular in recent years. When you buy a gift card, you provide funds for the recipient to spend in a specific store or venue. Gift cards give people wider choices and make it easier to shop for people without a wishlist.

As with cash, if you give a friend or relative a gift card, you don’t need to think about tax unless the value exceeds $16,000. Gift cards, like cash, are usually considered tax-free monetary gifts. 

3. Stocks

Buying stocks is one of the most common types of investment, but you can also give equity as a present. You may want to transfer some of your own shares; alternatively, you may be thinking about buying more stocks to give as a gift. With this option, the taxation rules are more complex, and it’s beneficial to speak to a financial adviser.

Assets, such as stocks, can be taxable monetary gifts. The tax rules vary according to who owns the stocks and who the recipient is. If you transfer shares, you and the recipient could be liable to pay taxes, including capital gains tax, on the assets. If you want to give stocks to a minor, you’ll need to create a specialized account, which you would manage until they reach adulthood.

4. Savings Transfers and Certificates of Deposit

Transferring money to a savings account or giving cash gifts through a Certificate of Deposit is a common way for adults to give money to children and teens. If you transfer money to a savings account every year, or deposit cash in an account with compounding interest, you can build a fund. Although this is one of the best ways to give money as a gift over a prolonged period, the earnings you make through interest on savings and CDs are taxable.

5. 529 Plan

A 529 Plan is an excellent way to gift money to children for later in life. This is a popular option for parents who want to create a fund for college, for example. This type of plan is not taxed if used for educational expenses, and there is no limit to the number of 529 plans you can set up. When you put money into a 529 plan, contributions are made once the tax has been deducted.

How to Give Tax-Free Monetary Gifts

If you are thinking about giving money as a gift, you should be aware of the limits applied by the IRS. The current annual limit for tax-exempt monetary gifts is $16,000 per person, so you won’t have to file a tax return for the present or report it to the IRS.

An individual can give as many cash gifts up to the value of $16,000 as they want without worrying about the recipients paying tax on the contribution. The $16,000 limit is the maximum value per person, and it applies to cash, gift cards, and checks. If you are married, you can combine your personal limits to donate up to $32,000 as a tax-free monetary gift. 

To eliminate tax liabilities on substantial cash gifts, you could consider donating money over some time, as the limit is $16,000 per person per year. There is a lifetime limit of $12.06 million; however, this will decrease to $6 million in 2026.

When Do You Have to Pay Tax on Monetary Gifts?

If you plan to give a gift, and the value exceeds the gift tax exclusion of $16,000 per year, you will need to file a gift tax return with the IRS. This does not necessarily mean you have to pay tax on your gift, but it ensures that the IRS is aware of the cash contribution. It’s also beneficial to gift money as a couple if you are married and want to give a large sum of cash.

How Does the IRS Know if You Give a Gift?

In most cases, the IRS will not know if you give money as a gift, as there is an exception for monetary gifts and the gift tax, which covers most donations. Unless your donation is worth more than $16,000, you will not need to file a gift tax return or report the gift to the IRS.

If you want to gift more than $16,000, you will need to notify the IRS of the donation by completing IRS Form 709. The annual gift exclusion limit applies per recipient. You can gift as many people as you like contributions up to $16,000 per year without informing the IRS.

What Is the Lifetime Gift Tax Exemption?

The lifetime gift tax exemption for 2022 is $12.06 million. This means that you can gift a maximum of $12.06 million in your lifetime.

The lifetime gift exclusion is vital, because it decreases the likelihood of paying taxes on monetary gifts. Even if you give a gift of more than $16,000 in a single year, you probably won’t need to pay tax on that gift because of your lifetime gift exclusion. The value will be deducted from your lifetime limit.

Your gift tax return tracks spending, subtracting each donation over $16,000 per year from the total lifetime value. If you are married, you can double your lifetime gift tax exemption if you are married, just like your annual one.

Donating Money for Educational Purposes

Many people, particularly parents and grandparents, want to help pay for the cost of education for the children in their families. If you plan to donate money to pay college fees, for example, it’s worth exploring alternatives to simply handing $16,000 or more in cash.

Rather than a monetary gift of more than $16,000 per year, which could contribute to additional taxes in the future, it is possible to donate money directly to an educational institution, such as a college, directly. This means you can gift as much as you like, provided you pay the college, rather than the person liable to pay tuition fees.

You can also use this system to fund medical bills. If you want to help somebody out with fees for treatment or rehabilitation after an accident, for example, you can pay the provider or the facility directly instead of paying the individual.

Is Gifting Assets the Same as Gifting Cash?

There are multiple ways to provide people you love with monetary gifts. If you are thinking about substituting cash with other options, such as a gift card or assets like stocks or land, for example, the same rules apply. If the value of your gift exceeds $16,000, you will need to make sure that you file a gift tax return.

How Much Gift Tax Do You Have to Pay?

Most people will not have to pay gift tax in their lifetime. However, if you exceed your gift tax exclusions, you will need to pay gift tax. The rate varies between 18% and 40%, depending on how far over your limit you are.

FAQ

What Is the Limit on a Monetary Gift?

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The limit on a monetary gift in 2022 is $16,000 per year. This is the individual limit per person. An individual can gift contributions up to $16,000 per year to as many recipients as they like without having to file a gift tax return. The lifetime limit is $12.06 million, so you can gift up to $12.06 million in your lifetime without paying gift tax. If you are married, you can double your gift exclusion to $32,000 per year, or $24.1 million in your lifetimes.

How Do You Declare Monetary Gifts?

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You have to declare monetary gifts over $16,000 per year to the IRS by filling in IRS Form 709. The IRS will track gifts and take individual payments away from your lifetime gift tax exclusion.

How Much Money Can You Receive as a Gift in 2022?

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The gift tax limit for 2022 is $16,000 per year. If somebody gives you more than $16,000 per year, they will need to submit a gift tax return. It is important to note that you don’t necessarily have to pay tax on gifts over $16,000. The individual donation will be deducted from the donor’s lifetime exclusion. They will only pay tax on the money they give if they exceed the lifetime limit.

Do Monetary Gifts Have to Be Reported to the IRS?

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The only time you have to inform the IRS of a monetary gift is when you give more than $16,000 per year to a single recipient. If you give more than $16,000, you will need to inform the IRS and complete the IRS 709 form. The IRS will keep track of each gift over $16,000 and deduct it from the lifetime exclusion. The lifetime exclusion is due to decrease from $12.06 million to $6 million in 2026.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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