To file or not to file a gift tax return, that is the question

You might wonder if filing a gift tax return is necessary if you made gifts last year. The short answer: There are many occasions when it is a requirement (or beneficial) to submit Form 709 — “United States Gift (and Generation-Skipping Transfer) Tax Return” — even though you’re not responsible for any gift tax. Let’s examine the causes in more detail.

What gifts are exempt from taxes?

The federal gift tax system assumes that all transfers of property made as gifts, including those made through loans or sales below market value, are taxable. But, then, it lists several exceptions. For example, nontaxable transfers that are exempt from Form 709 reporting requirements include:

  • Gifts of present interests within the annual exclusion amount ($17,000 per donee in 2023, up from $16,000 in 2022)
  • Direct payments of qualifying medical or educational expenses on behalf of an individual
  • Gifts to political organizations and specific tax-exempt organizations
  • Deductible charitable gifts
  • Gifts to one’s U.S.-citizen spouse, either outright or to a trust that meets specific requirements
  • Gifts to one’s noncitizen spouse within a particular annual exclusion amount ($175,000 in 2023, up from $164,000 in 2022)

No gift tax return is necessary if all of your gifts for the year fall into one of these categories. But even if they are excluded from taxation under the federal gift and estate tax exemption ($12.92 million in 2023, up from $12.06 million in 2022) or other exemptions, donations that don’t fit these criteria are typically regarded as taxable — and must be declared on Form 709 — and must be reported.

Are there tax pitfalls to watch out for?

If you give during the year, consider whether you must file Form 709. Also, be aware of the following common traps:

Future interests. The $17,000 annual exclusion applies only to present interests, such as outright gifts. You must disclose gifts of future interests on Form 709 even if they are less than $17,000 in 2023 ($16,000 in 2022) since they do not have protection. For example, transfers to a trust for the benefit of the donee.

Spousal gifts. Gifts to a U.S. citizen spouse do not need to be recorded on Form 709, as was previously mentioned. However, if you give money to a trust for your spouse’s benefit, the trust must meet specific requirements. It must:

  1. Provide that your spouse is entitled to all of the trust’s income for life, payable at least annually
  2. Grant your spouse a general power of appointment over the trust’s assets
  3. Not be subject to any other person’s power of appointment

Otherwise, you must report the gift.

Gift splitting. Spouses may elect to split a gift to a child or other donee so that each spouse has made one-half of the gift, even if one spouse wrote the check. Married couples can now pool their annual exclusions and gift up to $34,000 (up from $32,000 for 2022) to each donee in 2023. The donor spouse must submit Form 709 together with a consent form or, in some situations, a separate gift tax return from the other spouse to make a choice. Remember that after making this choice, you and your spouse must equally split all presents made to third parties during the year.

Filing a gift tax return?

The Form 709 submission deadline for 2022 is April 18. If you need more clarification on whether you must submit a gift tax return this year, please contact our RRBB accountants and advisors.

© 2023


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