Every year people give money for various reasons and to different people and organizations. Below are several commonly asked questions about the gifting of money.

Who pays the gift tax?
The donor is generally responsible for paying the gift tax.

Gift Tax:

Annual Exclusion: $15,000 in 2019

Tips: Charitable giving is one way you can positively impact your current tax position. One way to maximize charitable giving is to gift shock or mutual funds rather than cash. When you decide to gift rather than sell long-term appreciated shares, you’ll potentially get to take a reduction for the full fair market value of shares and avoid tax on the long-term capital gain. You also have the option of reducing your taxable estate by gifting up to $15,000 per year for single or $30,000 per year for a couple without any tax ramifications to you or the recipients of the gift. This allows the beneficiary to benefit from the gift much sooner than if the inheritance was tied up in the estate until dearth.

What can be excluded from gifts?

  • Gifts that are not more than the annual exclusion for the calendar year.
  • Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  • Gifts to your spouse.
  • Gifts to a political organization for its use.
  • In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

Do I need to pay tax with foreign wire transfer received from parents (non-US residents/citizens) living in another country?
It is not taxable income to you and not reported on your tax return since it is a gift. If the amount received from the foreign person is in excess of $100,000 for the year then you are required to report the funds received using IRS Form 3520.

Do I have to pay taxes on an inheritance Form A Foreign Relative?

Under most circumstances, you will not pay tax on the receipt of an inheritance from abroad – but you still may have to report it!

The short answer is that if you are a US person (US Citizen or Resident Alien) and you are receiving inheritance from a non US person (Non Resident Alien) who is abroad and the assets are based outside the US (non-US-Situs), the US will not impose taxes on you as the recipient, nor on the estate of the deceased.

  • A caveat if the assets are US-Situs
    • If a foreign individual owns US property and passes away, the US-Situs portion of his or her estate will be taxed heavily. The Executor of the estate must file Form 706-NA and 40% estate taxes (in 2018) will be levied on any amount over $60,000. This is different from the way estate taxes are levied on US persons – the lifetime exemption here is $11.18 million.
  • State inheritance taxes may still apply
    • Depending on the state you live in, you may owe inheritance taxes (to be paid by you, the beneficiary) on inheritance from a foreign source. It’s best to check with local estate attorney or accountant. Does your state have an inheritance?

Retirement Savings

401(K) Plans

  • Contribution Limits: $19,000 in 2019 up from $18,000 from 2018. This increases to $25,000 if you are 50 or older
    • Individual Retirement Accounts (IRA) – Traditional IRAs
      • Contribution Limits: $6,000 in 2019 from $5,500 in 2018. This increases to $7,000 if you are 50 or older. 10% penalty if withdraw before age at 59.5
    • Roth IRAs
      • Contribution with after tax dollars. But money generated with the Roth is never taxed again. You’re not required to begin taking withdrawal at age 70.5 as you are with traditional IRAs, 401(K)s, and other retirements savings plans.
    • Simple IRA
      • The Savings Incentive Match for Employees (SIMPLE) IRA is a retirement plan that small businesses with up to 100 employees can offer. It works very much like a 401(K). Contributions are made with pretax paycheck withdrawals, and the money grows tax deferred until retirement.
      • Distributions taken within two years of opening the plan and before age 59.5 can result in a hefty penalty, however – 25%. You can’t borrow from a SIMPLE IRA, either, the way you can from a 401(K).
    • SEP IRA
      • A Simplified Employee Pension (SEP) IRA allows you to contribution a portion of your income to your income to your own retirement account if you’re self-employed and have no employees. You can fully deduct these contributions from your taxable income.
      • The maximum annual contribution limits are higher than most other tax-favored retirement accounts: $56,000 or 25% of income  – whichever is less – as of 2019. $57,000 for 2020.