If you gifted more than $15,000 to an individual in 2019, you most likely have to file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
In the case your net worth becomes high enough to be subject to federal estate tax, the IRS wants to collect gift tax and have formal records on certain types of assets transferred out of your estate.
What is a "taxable gift?"
Before I dive into taxable gifts, let's define two key terms:
Basic Exclusion - the standard amount excluded from a wealthy person's federal estate tax. That's right, wealthy people have to pay a tax on the value of almost all of the assets in their estate. In 2019, the basic exclusion amount is $11.4 million.
Annual Exclusion - the standard gift amount a donor can give without having to file Form 709. In 2019, the basic exclusion amount is $15,000.
Generally, the federal gift tax applies to any transfer by gift of real or personal property that exceeds the annual exclusion. So, if you gave twelve cash gifts of $1,000,000 to your closest friends in 2019, $600,000 would be subject to the gift tax.
$12,000,000 Total value of gifts that each exceeded the annual exclusion of $15,000
( 11,400,000) Basic exclusion
$ 600,000 Taxable Gift
These gifts are "taxable" whether tangible or intangible, made directly or indirectly, in trust, or by any other means. The gift tax applies not only to the free transfer of any kind of property, but also to sales or exchanges, not made in the ordinary course of business, where value of the money (or property) received is less than the value of what is sold or exchanged. The gift tax is in addition to any other tax, such as federal income tax, paid or due on the transfer.
Who is liable for the tax?
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift tax.
For a gift in trust, each beneficiary of the trust is treated as a separate donee for purposes of the annual exclusion.
Spouses may not file a joint gift tax return. Each
individual is responsible for his or her own Form 709. For gifts made to spouses who are not U.S. citizens,
the annual exclusion has increased to $155,000
If the donor is a citizen or resident of the United States and his or her spouse died after December 31, 2010, the donor may be eligible to use the deceased spouse's unused exclusion (DSUE) amount. The executor of his or her spouse's estate must have elected on Form 706 to allow use of the unused exclusion amount.
If you are married and live or own property in Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin or Washington, then most of your assets and debts acquired in marriage are owned and owed equally by each spouse that resides or owns property in a Community Property state.
If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.
Gifts to Charities
If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities. If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities.
Other Transfers not Subject to the Gift Tax
In addition to gifts to qualifying charities, certain other gifts are not subject to the gift tax:
Transfers to political organizations
Payments that qualify for the educational exclusion,
Payments that qualify for the medical exclusion
Qualified Tuition Programs (529 Plans or Programs)
If in 2019, you contributed more than $15,000 to a qualified tuition plan (QTP) on behalf of any one person, you may elect to treat up to $75,000 of the contribution for that person as if you had made it ratably over a 5-year period. The election allows you to apply the annual exclusion to a portion of the contribution in each of the 5 years, beginning in 2019.
You can make this election for as many separate people as you made QTP contributions. You can only apply the election to a maximum of $75,000. You must report all of your 2019 QTP contributions for any single person that exceed $75,000 (in addition to any other gifts you made to that person).
In summary, more money, more tax returns. The Gift Tax Return is due the same time as your income tax return. You must file a separate return for each calendar year a reportable gift is given (for example, a gift given in 2019 must be reported on a 2019 Form 709. Do not file more than one Form 709 for any 1 calendar year.) Please note, gifts to grandchildren or other younger generations might also be subject to the Generation-Skipping Tax (GST). For assistance or questions about the Gift Tax, please contact The Little CPA.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.