How is a "gift" defined for tax purposes?

For tax purposes, a "gift" is defined as a transfer of property or money without expecting something in return. This definition captures the essence of what constitutes a gift: it is a voluntary transfer that does not involve a reciprocal exchange or consideration from the recipient.

The significance of this definition lies in its implications for taxation. The Internal Revenue Service (IRS) has established guidelines around gifts, which may include annual exclusions and lifetime exemptions that determine whether a transfer is subject to gift tax. Because the giver does not receive anything in return, it differentiates gifts from other forms of economic transactions, such as sales or exchanges, which typically involve some form of compensation.

In contrast, transfers that involve expectations of returns, payments for services, or forgiven loans do not align with this definition and thus are treated differently in tax legislation. Understanding this distinction is critical for both individuals making gifts and professionals advising clients on tax matters related to estate planning and gifting strategies.