One of the most misunderstood taxes is by far the federal gift tax. The federal gift tax applies to transfers of property from one person to another where the recipient does not pay fair market value for the property, or, in the case of gifts of cash, the recipient does not give anything of value in return for the cash. If you make one or more of these types of transfers to someone else during the course of any given year, then you may need to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, with regard to gifts that you have made. For the 2013 tax year, transfers of this type will require the person making the transfer to file IRS Form 709 under the following circumstances:
- The total value of all gifts made to the same person within the same calendar year exceeds $14,000. Gifts that do not exceed $14,000 per year to the same person in 2013 qualify for the annual exclusion from gift taxes. On the other hand, if you give your son $10,000 to buy a car and another $10,000 to pay off his credit card debt in 2013, then you have made a taxable gift to your son in the amount of $6,000 and you, as the gift giver, are required to file IRS Form 709 but your son will not incur any income tax or gift tax consequences. Note that since the annual exclusion from gift taxes was indexed for inflation beginning in 1997 and can only be increased in $1,000 increments, the annual gift tax exclusion for 2009, 2010, 2011 and 2012 was only $13,000.
- Your spouse gives one or more gifts to the same person that exceed $14,000 in value in the same calendar year and you and your spouse agree to "split" the gifts between the two of you. As mentioned above, gifts that do not exceed $14,000 per year (or $13,000 in 2009 through 2012) to the same person qualify for the annual exclusion from gift taxes. On the other hand, if your spouse gives his son $10,000 to buy a car and another $10,000 to pay off his credit card debt in 2013 and the entire $20,000 came from an account in your spouse's sole name, then your spouse has two options: (a) File Form 709 and report $6,000 in taxable gifts to his son; or (b) File Form 709 and report that you and your spouse have elected to divide the gifts between the two of you so that each of you is deemed to have made a $10,000 gift to the son. Gift splitting in this manner is what is referred to as a "legal fiction" - in other words, while your spouse is the only one who really made the gifts, the Internal Revenue Code allows you and your spouse to elect to say no, the gifts really came from both of us and so in the end no taxable gifts were made. While gift splitting is a total figment of the Internal Revenue Code, it is a perfectly legal and legitimate gift tax position.
- The total value of gifts made from a spouse who is a U.S. citizen made to a spouse who is not a U.S. citizen exceeds $143,000. Instead of the $14,000 annual exclusion limit for gifts made to a non-spouse in 2013 and the unlimited marital deduction for gifts made to a spouse who is a U.S. citizen, gifts made to a spouse who is not a U.S. citizen are limited to $143,000 for 2013. Below is a chart which shows the specific limits for gifts to non-citizen spouses for 2009 through 2012:
- You make a gift of a future interest to anyone during the course of the year. A gift of a future interest is one that the recipient will not be allowed to enjoy for a number of years. Examples include a gift made to a Qualified Personal Residence Trust or a gift made to any other type of irrevocable trust in which one or more beneficiaries do not have the immediate right to withdraw and use the gifted property.
When is IRS Form 709 Due?
IRS Form 709 is due on or before April 15 of the year following the year that you have made taxable gifts. So, for gifts made in 2013, IRS Form 709 is due on or before April 15, 2014.
If you need to file IRS Form 4868 to request an automatic six-month extension of time to file your personal income tax return, then this form also extends the time to file IRS Form 709. However, it does not extend the time to pay any gift tax you may owe. To make a payment of gift tax, use IRS Form 8892, which is discussed below.
If you do not need to extend the time to file your personal income tax return, then file IRS Form 8892 to receive an automatic six-month extension of the time to file IRS Form 709. However, filing IRS Form 8892 does not extend the time to pay any gift tax you may owe. You must make pay the gift tax you owe when the form is filed, otherwise interest and penalties will accrue.
If you are not sure if gifts that you have made during the course of the year should or should not be reported to the IRS on Form 709, then consult with your estate planning attorney and accountant well before April 15 of the following year to be sure.