We get it, being showered with gifts from the moment you announce your engagement is a pretty sweet deal. Makes you wonder if you could have a few engagements and get a few more gifts… Joking! But what are the tax implications in all those wedding gifts? Do you even need to worry about it? Simply put… Are wedding gifts taxable?
Well, with an impending shower imminent, it’s up to us to answer any questions you might have about the tax you will pay on your wedding gifts, whether you need to make adjustments and how your exact situation may vary depending on how much your family and friends love you. No. No. Depending on how lucky you and the gifts you will receive throughout your engagement.
Throughout this article, we will answer all your questions on both giving and receiving wedding gifts, what thresholds you need to look out for plus any legalities you need to consider when it comes to wedding gifts and taxes. Let’s get started.
Are Wedding Gifts Taxable?
Gift Tax Basics
Before we focus specifically on wedding day gifts, let’s take a quick look at gift tax basics. However, just to make one thing clear, we think it’s probably best to give you a little bit of an explanation into our experience before the IRS pays a visit… Well, we have worked in the wedding industry as both photographers and planners. We’ve done a far bit of research when it comes to wedding gift taxes. It was a very common question asked by our brides and grooms. That being said, whenever things get a little bit legal, we’d always recommend speaking to a certified professional. We are simply sharing our knowledge and experience.
So, what is gift tax? The IRS defines gift tax as “a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return.” [1] So, pretty much, a fee, or a percentage in monetary value, that you will have to pay (or reduce from your lifetime gifting allowance) for a transfer of property. In Layman terms, if someone gives you a Ferrari (you wish!), they may have to pay a percentage to the Internal Revenue Service or fill in a gift tax form that will ultimately reduce their lifetime gift allowance. Oh, with that in mind, just a heads up, this article is written for US based couples, you may need to explore the exact laws surrounding gift tax in your local area.
In the US, the limit is $16,000 per individual. To simplify with the Ferrari analogy again. If you are receiving a battered up, 3 wheeled Ferrari, worth just $15,000, the individual won’t pay a dime. However, a super fancy, lipstick red Ferrari, worth $17,000 (again… you wish), they may have to pay tax on the $1,000 excess.
Quite simple really, but let’s look at where wedding gifts come in.
Wedding Gifts and Gift Tax
When it comes to wedding gifts, the laws are very similar to general gift tax rules. However, we decided it was also best to look at the situation from both sides. The giving and receiving of gifts. This way you can both find the information that’s relevant to yourselves, plus pass on any advice to friends and loved ones.
Giving Gifts to a Newly Married Couple
When it comes to the giving of gifts to a soon-to-be or newly married couple, generally there is nothing major to consider. That being said, buying a new toaster oven for your daughter and future son-in-law, cannot be claimed back as a tax write off. Let’s not try and get clever about this! Just a note though, it’s become quite popular for couples to request a charitable donation rather than a set gift list. If you are gifting to a charity, you may be able to save a little on your tax return.
The IRS allows gifts up to $16,000 to be given annually without incurring any tax liabilities. This means as a giver, you could give up to $32,000 ($16,000 individually) to the married couple before any tax considerations have to be made.
One slightly murky area that may need to be considered, are any gifts that could fall under capital gains or other taxes. So, if you are thinking of gifting the newlyweds a new house to start their life together, they may fall into capital gains tax regulations. Usually it’s only if they then decide to sell the property.
Generally speaking, gifting rarely results in personal tax implications, however, if gifting a particular valuable item, such as a house, you may need to consider the tax implications for the couple. To be 100% sure about anything, get in touch with an accredited professional. They will be able to advise the exact specificities.
Story Amour Tip (Tax Avoidance Lawsuit Incoming): Weddings don’t just happen overnight, they tend to be planned over one to two years. With that in mind, if you plan to give over $16,000, you may want to start your giving early. Think of gifting a bridal subscription box early on in the engagement, this way you may be entitled to another $16,000 if the actual wedding day is over a year after the engagement.
The Receiving of Gifts by a Newly Married Couple
We’ve looked at the giving of gifts, but what about receiving as a couple? Well it’s important to understand exactly what to expect, the last thing you want is starting married life with a nice big tax bill!
Fear not, The IRS considers wedding gifts free of tax. You will not be taxed on any gifts regardless of the amount. That being said, if any individual gifts over $16,000, they may be subject to gift tax.
This basically means, you don’t have to pay taxes on your wedding gifts, unless you have got particularly generous friends and family… or have significantly overreached on the wedding registry! In this case, they may have to pay a little more depending on the amount.
Wedding Gift Tax FAQs
As you’ve read, when it comes to wedding gifts, the tax rules are pretty clear and unless you are expecting something out of the ordinary, you are probably in the clear when it comes to wedding gift taxes.
To help explain a little more, we’ve put together a list of some of the most popular questions asked by brides and grooms we worked with to help plan their wonderful wedding.
Wedding Registry Gift Taxes
Everybody has heard of wedding registries, but will you have to pay tax on the Egyptian cotton bed sheets gifted by your third cousin? The short answer is no. $16,000 each is the limit meaning you should be in the clear.
A wedding registry is a great place to organize all your wedding gift requests in one place. Essentially, you make a list of the gifts you want, invited guests are then allowed to pick from the list. They can choose a gift to give that suits their relationship with you and your budget. It simplifies the process and reduces the possibility of duplicate gifts.
As these gifts will be purchased by the guest, and delivered to either yourself or to the purchaser (before gifting), they will not be subject to tax. If you have chosen an epic wedding registry list involving items valued over $16,000 each, they may be subject to gift tax. This is because gifts from a single person will exceed the limit.
On a side note, if you are expecting to receive gifts over $16,000, my number is on the contact page. It’s 2023, a multi-person marriage is definitely a possibility… Joking. All that matters is love and all that…
Related Reading: Wedding Registry Etiquette for Guests
Do You Have to Report Wedding Gifts to the IRS?
Generally speaking, no you don’t have to report gifts to Inland Revenue no matter the amount of gifts you receive. However, if specific individuals are looking to gift items valued over $16,000, they will have to fill in a gift tax form.
Are Wedding Gifts from Parents Taxable?
Getting a bit repetitive really… Wedding gifts from anyone other than the spouse (less stringent tax rules apply), will not be taxable, provided they are under the $16,000 annual limit per person.
One thing to definitely think about when it comes to parents directly, is the amount of input parents will have on paying for the wedding. In times gone by, it’s tradition for the bride’s parents to pay for the wedding, this might mean that the total amount gifted exceeds $32,000 ($16,000 each). A good example to use would be the wedding venue. In many circumstances, a wedding venue may cost upwards of $16,000, this means that anything over $16,000 may require gift taxes to be paid or accounted for in the lifetime gift allowance.
In order to reduce taxes, they may have to get a little creative with their bookkeeping. All above board of course.
Paying for the Wedding Directly
Generally speaking, there is no difference to paying for the wedding directly vs gifting cash. It’s all about that $16,000 limit.
Gifting You Money So You Can Pay for the Wedding Yourselves
Once again, $16,000 is the magic number. If they give you cash over $16,000 individually, they may be subject to gift tax.
How Much Can You Gift a Married Couple Tax-Free in 2023.
The gift allowance changes regularly, be sure to check for the latest information. In 2023, the gift allowance is $16,000, in 2021 it was $15,000.
Do I Have to Report Gifted Money as Income?
Simply put… No. You do not need to report gifted money.
How Much is Gift Tax on a House?
While it might seem a little extravagant, gifting a house for the newly married couple is actually quite common. I actually grew up hearing stories of how my grandparents’ parents bought them a house when they got married. No idea how they managed to save the $100 that houses cost back then…
So, how much would you actually pay if gifting a house? Well, for the purpose of this example, let’s presume the house is valued over $32,000, $450,000 for this example. The person gifting the house would have to file a gift tax return, and likely use part of their lifetime gift allowance (more on this below) to avoid significant taxes on the $418,000 over the annual gift allowance.
What are some gift tax exclusions?
In truth, when it comes to common wedding gifts, everything will be excluded from tax. That being said, if a particular wedding guest wants to give towards your education bills, it won’t actually count towards that $16,000 limit. It’s a great way to work around the limits, but be sure to speak to a professional about the specific rules and regulations.
What if the gift amount exceeds $16,000?
So, you’ve heard us banging on about this $16,000 threshold, but what if the gifts actually exceed that number? Well, to start with you will have to fill in a gift tax return. From here, you will be able to work out the next steps to reduce potential taxation.
If your total annual gifting is over $16,000, the overflow will be added to your lifetime tax exemption. Just over $12 million as of April 2023. The lifetime tax exemption is essentially an amount that you can gift over your lifetime. However, it’s important to remember that the majority of people give the bulk of their gifts via their estate at the end of their life. If you go over the $16,000 by a considerable amount, this may have implications later in life.
A working example:
- You want to gift $30,000
- This is $14,000 over the $16,000 annual limit
- You have a lifetime limit of $12.92 million
- Your lifetime limit would therefore be reduced by $14,000, from $12.92 million to $12.906 million
Conclusion
There you have it, everything you need to know about wedding gift taxes, next time your parents or partner ask you “Are wedding gifts taxable”, you can give them a detailed, clear answer with working examples. Exciting times…
Wedding gifts are not directly taxable, however, should you exceed $16,000 in gifts from one individual, the person gifting will have to fill in a gift tax form which will then be subtracted from their lifetime gift allowance.
That’s pretty much it. Sounds like it’s time to start putting together your wedding registry!
Sources
[1] – https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax
