I receive many people asking if they have to pay taxes for receiving gifts from their friends and family from overseas.
The Internal Revenue Code aka the tax laws requires that the giver files Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if the gift is from a US person or entity to another US person or entity, more than $15,000, not for one's spouse, and not for charity. Form 709 may also result in the giver paying gift tax.
If a non-US person sends a gift to a US-person, the giver (the non-US person) does not have to file Form 709. The receiver (the US person), however will be required to file Form 3520, Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if the US person receives:
- more than $100,000 during the tax year from a foreign person or estate, or
- more than $15,601 during the tax year from a foreign partnership or corporation
If you fulfill the filing requirement, you are required to prepare and file Form 3520 even if you do not have to file a tax return, such as Form 1040, Form 1120, Form 1120-S, or Form 1065. Form 3520 is just an information return for gift-reporting purposes. No tax will be associated with the preparation and filing of the form.
Due date for filing Form 3520 is April 15, with extension, for anyone with a calendar tax year.
Penalty:
The IRS may assess a penalty of 5% of the amount of the gift for each month the gift tax return is not filed, up to 25%.
While we are on the topic, do not forget that if you have foreign assets account and that it is above the filing requirements for Forms FinCEN 114 and 8938, make sure you prepare and file them on time. Not filing them will attract hefty penalty from the IRS (just as all other international-taxation related penalties are very high).
Finally, what if a US person sends a gift to a non-US person or entity? The regular rules for gift tax return Form 709 will apply. The giver (US person) will have to prepare and file a Form 709 with his or her individual income tax return Form 1040.
Why Choose Trans-Pacific Accounting and Business Consuting
International-related taxation in the Internal Revenue Code is extremely complex and confusing. Many seasoned CPAs and tax return preparers are not familiar with the filing requirements. It is very common for them to miss reporting foreign income, forms, and information. The IRS has heightened its enforcement on non-compliance on foreign-related reporting, and penalties are generally extremely high. Not sure if you need to file or if your current CPA or tax return preparer is preparing your tax return correctly? Not sure if you are filing all the required forms? Contact us now for a free consultation.
The Internal Revenue Code aka the tax laws requires that the giver files Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if the gift is from a US person or entity to another US person or entity, more than $15,000, not for one's spouse, and not for charity. Form 709 may also result in the giver paying gift tax.
If a non-US person sends a gift to a US-person, the giver (the non-US person) does not have to file Form 709. The receiver (the US person), however will be required to file Form 3520, Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if the US person receives:
- more than $100,000 during the tax year from a foreign person or estate, or
- more than $15,601 during the tax year from a foreign partnership or corporation
If you fulfill the filing requirement, you are required to prepare and file Form 3520 even if you do not have to file a tax return, such as Form 1040, Form 1120, Form 1120-S, or Form 1065. Form 3520 is just an information return for gift-reporting purposes. No tax will be associated with the preparation and filing of the form.
Due date for filing Form 3520 is April 15, with extension, for anyone with a calendar tax year.
Penalty:
The IRS may assess a penalty of 5% of the amount of the gift for each month the gift tax return is not filed, up to 25%.
While we are on the topic, do not forget that if you have foreign assets account and that it is above the filing requirements for Forms FinCEN 114 and 8938, make sure you prepare and file them on time. Not filing them will attract hefty penalty from the IRS (just as all other international-taxation related penalties are very high).
Finally, what if a US person sends a gift to a non-US person or entity? The regular rules for gift tax return Form 709 will apply. The giver (US person) will have to prepare and file a Form 709 with his or her individual income tax return Form 1040.
Why Choose Trans-Pacific Accounting and Business Consuting
International-related taxation in the Internal Revenue Code is extremely complex and confusing. Many seasoned CPAs and tax return preparers are not familiar with the filing requirements. It is very common for them to miss reporting foreign income, forms, and information. The IRS has heightened its enforcement on non-compliance on foreign-related reporting, and penalties are generally extremely high. Not sure if you need to file or if your current CPA or tax return preparer is preparing your tax return correctly? Not sure if you are filing all the required forms? Contact us now for a free consultation.