Did You File Your Gift Tax Return?

/ April 23, 2011

Many people are breathing a sigh of relief now that the deadline (April 18 this year) for individual income tax returns has passed.  But, did you remember to file your Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return?  Gift Tax Returns were due on the same day as your individual income tax return.

See two previous Epilawg posts, Estate and Gift Tax Laws 2011 and “Lame Duck” Session is Anything But, for an overview of the gift tax rules.

There is much confusion surrounding gift taxes and when a return must be filed.  Here are the answers to a few common questions:

When must I file a gift tax return?

Generally, if you give a gift worth more than $13,000 to anyone other than your spouse in 2010 or 2011, you must file a gift tax return.  If your spouse is a U.S. citizen, you are permitted to gift an unlimited amount free of gift tax to your spouse; therefore no gift tax return needs to be filed.  Additionally, even when you give a gift, no matter what the amount, that is not a present interest (meaning the recipient cannot use the gift immediately), you still must file a gift tax return.

You and your spouse may jointly gift up to $26,000 to as many people as you choose during the year without being subject to gift tax; however, a gift tax return must be filed so that both spouses acknowledge and consent to the gift-split.

Other unique situations may require filing a gift tax return.  If ever in doubt, consult your tax preparer.

Keep in mind that even when you file a gift tax return, everyone currently has a lifetime gift tax exemption of $5 million dollars. Therefore, the gift tax returns will be applied to this exemption. Only after you exceed the lifetime exemption will tax be due. However, this gift tax exemption is tied with your federal estate tax exemption of $5 million dollars. By applying gifts to the exemption, you take away from your federal estate tax exemption in an equal amount.

Do I have to pay tax on gifts I receive?

You do not have to pay tax on gifts you receive.  The gift is not considered income to the recipient.  If gift tax is due on the gift, the person giving the gift is responsible for the tax.

What constitutes a gift to my child?

While your child is a minor (less than 18), any payments towards housing, clothing, food, medical care and education are not considered gifts.  A parent’s legal support obligations typically end at the age of 18, at which point a parent must be careful.  Buying a car, paying for a house, education or medical care may amount to taxable gifts.

However, if you pay for someone else’s (be they a friend or family member) tuition, dental or medical expenses, and, such payment is made directly to the educational institution or medical provider, it will not constitute a taxable gift for purposes of either the $13,000 annual exclusion or the $5M basic exclusion.

Uh oh, I did not file a gift tax return.

If you properly applied for an extension for your income taxes, you automatically extended your time to file Form 709.  However, if you owe gift taxes, those should have been paid by April 18; therefore, you will owe interest and possibly penalties.

If you failed to file gift tax returns for past years, you can still file them.  In general, if no gift tax was due, there should be no penalty for late filing if you remedy the problem before the IRS catches you.  If gift tax was due, you will be liable for interest and possibly penalties.

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