Final answer:
A gift may be subject to "gift tax" which is paid by the person giving the gift. This federal tax under estate and gift tax laws is designed to avoid tax evasion through wealth transfer. A progressive tax structure increases the tax rate as the gift value increases.
Step-by-step explanation:
Concerning the tax implications of a gift, the correct statement is that a gift may be subject to "gift tax" which is paid by the person giving the gift. The gift tax is a federal tax applied to an individual giving anything of value to another person. For taxation purposes, the person who donates the gift is responsible for paying the gift tax, not the recipient. This system is designed to prevent wealthy individuals from avoiding estate taxes by transferring their wealth during life rather than at death.
Understanding the basics of personal income taxation, including the adjusted gross income, deductions, and exemptions, is essential. However, it's important to differentiate that these concepts do not apply to the gift tax. The taxation of gifts is governed separately under the estate and gift tax laws. The Internal Revenue Service (IRS) requires that any gifts above a certain annual or lifetime exclusion amount must be reported, and the appropriate tax must be paid by the giver.
To illustrate further, if gifts were taxed at a rate of 10% for amounts up to $100,000 and 20% for anything over that amount, such a tax structure would be considered progressive because the tax rate increases as the value of the gift increases. This is in contrast to a regressive tax, where the tax rate decreases as the amount subject to taxation increases.