Have you received gifts from foreign countries? If you’re concerned about certain foreign gifts and cash amounts being taxable, don’t worry.
On the whole, gifts from foreign persons are taxable from the gift-giving side. This means that they may need to file IRS Form 709, and you – as recipient – will still have to report foreign gifts on IRS Form 3520.
While gift taxes and thresholds may not always apply to you, failure to report gift money could result in penalties.
Can I be taxed on money gifts from abroad?
No – generally, you won’t be taxed on receiving a foreign gift, whether it’s from a foreign estate, foreign corporations or otherwise.
It generally falls to the foreign party giving gifts to pay applicable taxes.
However, whether you are among green card holders or are a resident U.S. person, you will need to consider foreign gift reporting via the IRS.
On your income tax return via the IRS, you may need to report via Form 3520 if the total amount of cash gifts exceeds a specific amount.
The foreign person giving money is known as a ‘nonresident alien individual’ for taxation purposes – this may be a parent or family member, a foreign estate, or foreign partnerships.
You’ll file your foreign business via Form 3520 as part of your annual return or income tax return.
If you receive more than $100,000 from foreign nationals who are non-resident in the US, then foreign gift tax will apply, and you will need to disclose such gifts in the appropriate form.
If you don’t report transactions such as these, you are breaking gift tax rules, and may be subject to fines.
You’ll also need to remember that if you receive more than $16,388 in gifts (as of 2021) from a foreign corporation in a single tax year, you’ll still need to file Form 3520.
Remember that inflation is adjusted annually, meaning that while tax laws may remain the same in the US from year to year, the foreign corporations threshold is likely to increase a little.
The general idea right now is that if your foreign corporation gift exceeds more than $16,000 in any given tax year, you likely won’t have to worry about IRS reporting.
Do I have to pay tax on a foreign gift, even if it’s non-cash?
If you receive a non-cash gift from foreign persons and it is based in the US, it may be subject to income tax.
However, special rules state that the donee, or recipient, may not have to pay foreign gift tax if it is property shared within American grounds.
That is where the nonresident alien, as established above, may have to pay tax on their gifts.
The general rule of thumb is if you receive tangible personal property, as a U.S. person within the country – but from foreign individuals who are non-resident – you may be tax exempt.
Of course, it is always a good idea to contact accountancy or book-keeping specialists if you are worried about filing a tax return on the back of gifts from a foreign, nonresident alien.
Your individual circumstances may vary, as might those that apply to several countries.
You just need to make sure you keep abreast of the IRS reporting requirements so you don’t receive a penalty for willful neglect.
Finally, be aware of custom duty that many countries charge upon delivering a gift from abroad. Look up your rules locally.
Can I make a gift to a foreign person without paying tax?
No – you will still need to file tax forms if you make foreign gifts of money from the US, and you may still be subject to a specific level of tax. It is in US law that giving money to a non-resident spouse, too, may trigger taxes. However, there is good news where all of this is involved.
The upper threshold for gift taxes you pay on foreign money is often considered very high – it is a lifetime threshold that stretches into millions of dollars. However, if you are likely to be making large amounts paid overseas over your lifetime and career, it’s still an excellent idea to contact the Internal Revenue Service.
Again, we highly recommend that you get in touch with legal advice if you have reasonable cause to make large monetary gifts abroad. Money can add up easily over time, and it is better to be safe than to be sorry!
It is never a good idea to seek ways to avoid paying taxable income. Even avoiding a reporting requirement, with zero tax due, could cost you dearly in terms of penalties.
How much money can you receive as a gift from overseas?
As of 2021, you may receive up to $100,000 in cash gifts in a year from foreign individuals before you file Form 3520. You will also need to file Form 3250 if you receive gift money from foreign businesses, corporations, foreign trusts and partnerships, etc.
Once again, you may not have to pay tax on this income. However, if you don’t file Form 3520 and you’re legally obliged to, the IRS can and will apply charges. It’s crucial to keep them on side!
Rules for gifts or bequests in the United Kingdom
In the UK, if you receive money as a gift, you normally won’t have to report it on your return within the tax year. It’s not classed as income.
However, if you generate interest from a gift received in a savings account, for example, you will have to report that interest as gross income.
But, while you won’t have to do any administration such as filing Form 3520 if you receive gifts, you may have to pay inheritance tax in some circumstances.
In these cases, it is always worth consulting a solicitor – as estate tax can take a large amount of money away from what you are entitled to.
Generally you will not incur taxes as the receiver of a gift from a foreign national, depending on the gift (unless they’ve sent it via international post where some receiving countries will charge international tax duty depending on the gift and its value).
While money from some foreign estates will incur taxes, there is plenty of advice available if you’re unsure about your specific territory.
Filing a gift tax return may be complex in some cases, so it’s always a good idea to reach out for help if you’re unsure about your gifts received.