Before we can discuss when taxes must be paid on Christmas gifts or any other gifts, for that matter, we must first define a couple of important terms used by the Internal Revenue Service (IRS).
Donor vs. Donee
In ordinary language, the person giving a gift is often called the gift-giver while the person receiving the gift is referred to as the gift-receiver. But the IRS rarely uses ordinary language.
Rather than “giver” and “receiver,”’ the IRS uses the terms “donor” and “donee.” The “donor” is the person giving a gift while the “donee” is the person receiving a gift.
Both the donor and donee may or may not have to pay taxes based on a number of other variables.
Tax exemptions for gifts less than $15,000
The IRS defines “convertible virtual currencies” like Bitcoin and other fungible cryptocurrencies as property. This means that any cryptocurrency that can be exchanged for other cryptocurrencies or fiat is subject to the same taxes as other property-based assets.
When property-based assets are gifted from a donor to a donee, certain taxes must be paid by the donor only if the monetary value of the gift exceeds $15,000 (for the years 2018 and 2019)
For example, if Grandpa Joe gave Uncle Mike $15,000 of Bitcoin as a Christmas gift, Grandpa Joe does not have to pay taxes on that gift. However, if $15,001 or more were given, Grandpa Joe would have to pay taxes on the gift.
To clarify, if someone gifts you crypto for Christmas you don’t need to include it as income and they don’t need to pay tax on it (as long as it’s under $15K). Merry Christmas everyone!
— Crypto Tax Girl (@CryptoTaxGirl) December 25, 2018
Furthermore, Grandpa Joe can also give $15,000 worth of Bitcoin to as many other people as he would like. There is no limit to the number of tax exempt gifts that can be given. However, the total of $15,000 per donee cannot be exceeded. If Grandpa Joe gave Uncle Mike $10,000 worth of Bitcoin in 2018 for Mike’s birthday, he can only give a gift worth a maximum of $5,000 at any other point during the year, including Christmas.
Lastly, a donor can only gift $11.2 million over their lifetime as tax exempt gifts. If they give more that $11.2 million at any point during their life, all gifts after that point will be taxable.
Who is the donee?
If a gift is given to a spouse, there is no limit on the monetary amount that can be given. While Grandpa Joe can only give up to $15,000 worth of Bitcoin to most of his family, he can give as much Bitcoin as he wants to his husband or wife.
Spouses can also give conjoined tax-exempt gifts. Since both can give a total of $15,000 alone, they can give $30,000 together.
So while Grandpa Joe can only give $15,000 worth of Bitcoin to Uncle Mike before he has to pay taxes, he and his spouse can give $30,000 worth if they gift it together as one donor.
What Happens when the donee sells?
Maybe Grandpa Joe gave Uncle Mike one bitcoin when it was priced at exactly $4,000. Uncle Mike does not pay tax on that gift until he sells the bitcoin or any portion of it. He will only owe taxes on the amount of profit gained from the sale.
Nonetheless, even if no profit was incurred from the sale, he will still have to report the sale to the IRS or else face a possible audit.
In other words, if the price of one bitcoin drops below $4,000, he will be reporting an overall loss and not be required to pay taxes on it. However, if he sells the gifted bitcoin when Bitcoin $5,000, he will have to pay taxes on the $1,000 earned as profit.
In short, gifts worth up to $15,000 can be given from one donor to any number of donees in 2018. This means that up to $15,000 of Bitcoin or any other cryptocurrency can be given as a Christmas gift without the giver or receiver having to pay taxes. However, the receiver, or donee, will have to pay taxes on all profits incurred after their Bitcoin is sold.
Did you receive any Bitcoin for Christmas? If so, did this guide help you to understand how to pay taxes? Let us know in the comments below!
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