By Bethany Bouw, CPA
Tis the season when those far and wide give gifts to their loved ones and charities. While you may be giving purely for the benefit of others, this does not remove the need to be aware of IRS requirements and regulations. Though the recipients will appreciate your altruistic intent, the IRS still has expectations no matter the spirit of the season. So, lest you fall afoul of the reporting rules, here are three commonly asked questions to consider as you gift and donate internationally this holiday season.
I live abroad and made donations to a local charity. Can I deduct that donation on my US income tax return?
You can only take a deduction for charitable contributions made to a qualified organization. There are some exceptions but generally speaking, only those organized in the United States qualify for deductions. There may be exceptions for certain Canadian, Mexican, or Israeli charities. A good rule of thumb is to check the IRS’ Tax Exempt Organization Search. For example, you may have made a donation to the international school that your children attend that may be both a foreign charity and also organized in the US to get deductible donations from US citizens. It is a good idea to inquire before donating so that you know if there are specific payees or ways to make the donation to get a benefit from the donation on your tax return.
I am a US citizen and my non-US person parent wants to give me a big holiday gift. What do I need to consider?
Receiving gifts from foreign persons is not forbidden, but there can be reporting requirements that go along with getting the gift. If your parent, who is a non-US person, gives you under $100,000 then you should not need to report the gift. However, if you receive an additional gift from your other non-US person parent and together the value of both exceeds $100,000, you would likely need to report the gifts on Form 3520 with your income tax. Also, reportable gifts do not only include cash. If your foreign parent gives you an expensive luxury car or jewelry that exceeds the reporting threshold, that will cause you to have a reporting requirement. Generally speaking though, smaller foreign gifts do not need to be reported. However, if all the smaller gifts of the year in aggregate exceed the reporting threshold, you should look into reporting the foreign gifts received.
As an example, let us say your parents are European citizens and residents. In October, your French mother gave you a vehicle worth $47,000. In December of the same calendar year, your Swedish father gave you $55,000 towards a down payment on a house. Though these are separate gifts made in different ways, they would generally still need to be reported as their totaled value exceeds $100,000.
On the other hand, if they jointly give you a lump sum of $88,000 towards a home or entrepreneurial endeavor and this is the only gift from them/related persons, there would likely be no reporting necessary. Though you would still want to make your tax professional aware of the gift, in case any other rules apply.
Regulations get more complicated if the non-US person is a covered expatriate. Should this be the case, there may be a tax on the gift or bequest. The rules for expatriate gifting vary based on the situation. We highly recommend that you discuss any such gifts with your foreign tax expert to learn of any applicable requirements. It is also recommended that such discussion with the foreign tax expert be held before gifting, if at all possible. Getting the facts beforehand will help you proactively tax plan instead of reactively addressing the gift.
I am a US person and want to give a gift to my foreign relative who is not a US citizen or resident. What do I need to consider?
As a US person, you are subject to the same gifting rules for US purposes whether your gift is to a US person or a non-US person. Therefore, gifts to a foreign person below the annual exclusion amount do not create a reporting requirement. If you exceed that amount, however, you will likely need to file a gift tax return. Since the unified credit has increased thanks to the Tax Cuts & Jobs Act, you likely will not need to pay any tax with the filing. Instead, you may eat up a part of your lifetime unified credit. It is also important to note that all of these gift-giving rules apply to US persons even if they are residing abroad at the time of the gift giving.
You may wish to elect to split gifts with your spouse if you give more than the annual exclusion amount. Gift splitting is generally disallowed if your spouse is not a US citizen or US resident alien.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings and complicated tax matters related to foreign gifts and donations. For questions or concerns regarding your international accounts, entities, and assets click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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