What Are Gift Tax Returns?
The gift donor must submit a federal tax return under specific conditions. (There is no tax on returned gifts.) The return is Form 709.
How Gift Tax Returns Work
Taxpayers must fill out the form if they contribute more than the IRS’s annual or lifetime exempt donation limit. In 2022, the lifetime exemption is $12.06 million, and the yearly gift exemption is $16,000 ($17,000 for 2023). The inflation-indexed lifetime exemption rises annually.
In 2022, a person must file a gift tax return for any contribution above $16,001 to a single recipient. Gift taxes on gifts beyond the exempt amount need to be returned.
Only donors who gave above $16,000 in 2022 ($17,000 in 2023) utilize the gift tax return. Consult an expert and local tax law to navigate the complex gift tax restrictions. Many people employ estate planning with a financial planner, tax expert, or attorney to carefully pick when, how, and who gets the estate’s money to avoid the gift tax.
Who pays the gift tax and files the return?
A federal gift tax applies to individuals who give anything of value to another person. The receiving party may pay less than the entire value of a present to consider it a gift.
Gift-givers must submit a gift tax return if they contribute more than the exemption. Unless otherwise agreed upon, the gift-giver must pay and file the gift tax return.
IRS Form 709 is the gift tax return. If the giver exceeds their lifetime gift exclusion limit, the receiver may pay the gift tax or a portion.
The gift-splitting method permits married couples to quadruple their gift tax liability under federal law. Marriages combine allowances as if each contributed half.
To split gifts officially, both couples must agree and describe the situation while paying taxes. In 2022, a couple filing a gift tax return might donate $32,000 before paying taxes (it rises to $34,000 in 2023).
Conclusion
- Gifts above $16,000 for 2022 ($17,000 for 2023) to a single recipient need a “gift tax return” with their yearly tax return.
- Medical and tuition gifts are excluded.
- Taxable donations must surpass $12.06 million to a single recipient by 2022 ($12.92 million in 2023 to adjust for inflation).
