When Must Form 709 Gift Tax Return Be Filed and Who Must File One?
How to Determine If You Should File a Gift Tax Return, IRS Form 709
The federal gift tax applies to transfers of property from one person to another when the recipient doesn't pay fair market value for the property. In the case of gifts of cash, the recipient doesn't give anything of value in exchange for the money.
In other words, it's not a "fair" exchange. The recipient comes out ahead in the transaction while the giver receives very little if anything in return. And yes, the Internal Revenue Service taxes these exchanges.
If you make one or more transfers of cash or property to anyone during the course of the tax year, you might have to file IRS Form 709, the Gift and Generation-Skipping Transfer tax return, and pay the gift tax. But there are some exceptions.
Why Impose Such a Tax?
Large estates are taxed on their value when someone dies and leaves his cash and property to his beneficiaries. There might be nothing left for the federal government to tax at his death if the decedent were able to give his largess away tax-free during his lifetime. The gift tax prevents this.
The recipient of a gift isn't liable for the tax. The donor is responsible for paying the gift tax.
The Annual Exclusion
You must file Form 709 if the total value of all the gifts you make to a single person within the same calendar year exceeds $15,000 as of 2018. Gifts that don't exceed $15,000 per year to the same person qualify for the annual exclusion from gift taxes.
If you give your son $10,000 to buy a car and another $10,000 to pay off his credit card debt, you've actually made a taxable gift to him in the amount of $5,000—$20,000 less the $15,000 exclusion. You're required to file IRS Form 709 to report that $5,000 gift.
The annual exclusion was indexed for inflation in 1997 but it can only be increased in $1,000 increments. This means it can go up each year, but not by more than $1,000. The exclusion for 2009, 2010, 2011, and 2012 was $13,000. It increased to $14,000 in 2013 and held steady there until 2017. It increased to $15,000 in 2018.
Spouses Can "Split" Gifts
If you or your spouse gives one or more gifts to the same person in the same calendar year, you can agree to "split" the gifts between the two of you to stretch the annual exclusion.
Your spouse might give your son $10,000 to buy a car and another $10,000 to pay off his credit card debt. He now has two options. He can file Form 709 and report that he made $5,000 in taxable gifts to his son, or he can file Form 709 and report that the two of you have elected to divide the gifts between you.
In this case, each of you is deemed to have made a $10,000 gift, each coming in under the $15,000 annual exclusion. No tax would be due even if the entire $20,000 came from an account in your spouse's sole name.
Gift-splitting is a concept often referred to as "legal fiction". Even though your spouse is the one who really made the gifts, the Internal Revenue Code allows you to effectively say, "No, the gifts really came from both of us." The end result is that no taxable gifts were made.
Gift-splitting is a total figment of the Internal Revenue Code, but it's a perfectly legal and legitimate gift tax option.
Another Option—The Lifetime Exemption
The Internal Revenue Code also provides for a lifetime exemption from gift taxes. Using the $20,000 gift to your son as an example again and assuming that you and your spouse don't split the gift, you can either pay the gift tax due on the $5,000 balance or you can effectively charge that balance to your lifetime exemption.
The lifetime exemption is pretty significant as of 2018. You can give away up to $11.18 million over the course of your lifetime without paying the gift tax. Unfortunately, the gift tax and the estate tax share this exemption. The IRS isn't that generous.
If you give your son $500,000 in gifts over the course of your lifetime over and above the annual exclusions, this reduces your estate tax exemption—that which avoids having your estate pay an estate tax on its value at the time of your death. Subtracting that $500,000, you would only have $618,100 left to shield your estate from taxation when you die. This lifetime exemption is also indexed for inflation and can change annually.
In a way, this shared exemption makes sense. Remember, the whole idea behind the gift tax is to prevent wealthy individuals from giving their property away tax-free before death to avoid estate taxation after their deaths.
Gifts to Spouses Who Are Not U.S. Citizens
Unlike the unlimited marital deduction for gifts made to spouses who are U.S. citizens, gifts made to spouses who are not citizens are limited. Gifts made from a spouse who is a U.S. citizen to one who is not a U.S. citizen are taxable when they exceed $152,000 as of 2018.
The specific limits for gifts to non-citizen spouses from 2009 through 2018 are:
- 2009 $133,000
- 2010 $134,000
- 2011 $136,000
- 2012 $139,000
- 2013 $143,000
- 2014 $145,000
- 2015 $147,000
- 2016 $148,000
- 2017 $149,000
- 2018 $152,000
When Is IRS Form 709 Due?
IRS Form 709 is due on or before April 15 of the year following the year in which you made taxable gifts. If you find that you have to file IRS Form 4868 to request an automatic six-month extension of time to file your personal income tax return, this form also extends the time you have to file IRS Form 709.
Even if you don't have to extend the time to file your personal return, you can still file IRS Form 8892 to receive an automatic six-month extension to file IRS Form 709.
Filing Form 8892 does not extend the time to pay any gift tax you might owe, assuming you're not going to chalk the gift up to your lifetime exemption. And if you are, you must indicate this on Form 709. Don't worry, the IRS will keep track of all those lifetime gifts for you.
If you're not sure if gifts you've made during the course of the year should be reported to the IRS on Form 709, consult with an estate planning attorney or an accountant well before the April 15 deadline to find out.