What type of tax is imposed when one person gives a gift to another?

The tax imposed when one person gives a gift to another is referred to as a gift tax. This tax is specifically designed to apply to transfers of wealth without receiving something of equal value in return. The primary purpose of the gift tax is to prevent individuals from avoiding estate taxes by transferring their wealth to others before they pass away.

In the context of U.S. tax law, the gift tax is applicable when the value of the gift exceeds the annual exclusion limit, which allows individuals to give a set amount each year to any number of people without incurring the tax or having to file a gift tax return. If total gifts made to an individual exceed this limit during the year, the giver must report it, and the excess amount will be subject to the gift tax.

Income tax, capital gains tax, and estate tax do not pertain directly to the act of gifting. Income tax is charged on earnings, capital gains tax applies to profits from the sale of assets, and estate tax is levied on the value of a deceased person's estate before distribution to heirs. Each of these taxes operates under different principles and is triggered by different financial activities or events.