Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is the purpose of the gift tax?

1. Tax on earned income

2. Tax on property or items received

3. Tax on sales transactions

4. Tax on corporate profits

The correct answer is: Tax on property or items received

The purpose of the gift tax is to impose a tax on property or items received without the expectation of receiving something of equal value in return. This tax is designed to limit the amount of wealth that can be transferred from one individual to another without being taxed, thereby ensuring that any substantial transfers of wealth are subject to federal taxation. It applies to gifts made during a person's lifetime and is intended to prevent individuals from avoiding estate taxes by giving away their wealth before they pass away. In this context, the gift tax specifically targets transactions where one party gives assets to another without receiving something similar in return, reflecting the concept of voluntary transfers rather than sales or earned income. Understanding this helps clarify the intent behind taxation laws and how they apply to personal wealth and estate planning strategies.