The gift tax return is the IRS’ way of keeping track of who gifted what to whom — and how much it was worth — in the previous calendar year.
If you gave cash, property, or other valuable gifts to anyone in 2022, you may have an obligation to file a gift tax return alongside your individual income tax return for Tax Day 2023.
Do You Need to File a Gift Tax Return?
Generally, you will need to file a gift tax return (Form 709) this coming tax season if you gave gifts totaling more than $16,000 to one person, not counting your spouse, in 2022. The $16,000 limit represents this year’s annual gift tax exclusion.
Note that a gift tax return is not required for gifts of any amount that are paid directly to an educational institution, medical provider, political organization, or certain exempt organizations.
For example, if you sent your grandchild a check for $20,000 meant to go toward their college tuition in 2022, you would be required to file a gift tax return. Sending that payment directly to their college bursar would not require a gift tax return, even when it exceeds the annual exclusion amount.
Also, present interest gifts of any amount to charities that qualify as tax deductible are generally not required to be reported on a gift tax return. Present interest means the full gift is available immediately and no part of it is being held until the donor’s death or another date in the future.
Read More: Gift Tax: What Is It & How Does It Work?
Filing Gift Tax Returns
In any gift exchange, the giver is responsible for filing a gift tax return and paying any tax owed — not the recipient, unless there was a prior agreement otherwise.
If you give something other than cash or easily valued property such as stock holdings to someone, you will need to determine the fair market value of the gift. The IRS says you can do this by either disclosing the detailed method used to determine the fair market value or attaching an appraisal from a qualified professional to the gift tax return.
A qualified appraiser must be someone other than the gift giver, recipient, or a family member of either person. A closely held business or fine art collection are types of gifts that would likely need an appraisal.
Unfortunately the IRS does not accept gift tax returns electronically, so if you have a filing obligation you will need to print out the form and mail it to the following address:
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999
If you use a private delivery service, your gift tax return should be filed here:
Internal Revenue Service
333 W. Pershing Road
Kansas City, MO 64108
The gift tax return can be complicated. If you file your taxes using online software, the platform will ask about your annual gifts in a simpler question-and-answer format and fill out the gift tax return for you. You’ll still have to print it out and send it via snail mail.
If your annual gifts are substantial or complex in nature, a tax advisor or financial planner can help you fill out the gift tax form properly.
Read More: Guide to Filing Your Taxes in 2022
Gift Taxes You Should Always File
Here’s a list of common gifts that would require filing a gift tax return by Tax Day 2023:
You gave at least one person gifts totaling more than $16,000 in 2022.
You gave gifts in any amount of future interests (such as remainder interests in a trust) last year.
You gave gifts of community or jointly held property last year, including real estate, a joint bank account, or a U.S. Savings Bond.
You gave gifts to a non-citizen spouse that exceeded the annual gift tax exclusion amount of $164,000 last year.
You want to split gifts with your spouse (including same-sex spouses) in order to take advantage of a combined annual gift tax exclusion of $32,000. In this case, the IRS requests that you still file separate gift tax returns but include them in the same envelope.
Filing a gift tax return is necessary if you meet the above requirements, even if you don’t owe any gift tax. In fact, most people don’t end up owing any gift tax because the lifetime gift tax exclusion is so generous.
For 2022, the lifetime gift tax exclusion is $12.06 million per individual, or $24.12 million if you’re married and you file a joint income tax return with your spouse (these amounts are indexed every year for inflation). That’s on top of the annual exclusion.
Here’s an example: Let’s say you gave $17,000 to a nephew last year. The portion of the gift over the annual exclusion — $1,000 — will be included in your gift tax return reporting and subtracted from your lifetime exclusion amount. As you can see, it takes a lot of gifting for taxes to kick in.
Read More: Types of Nontaxable Income
The Deadline for Filing Gift Tax Returns
Gift tax returns are due the same day as individual tax returns, unless you file for an extension. In 2023, the tax deadline is April 18.
What Happens If I Don’t File a Gift Tax Return?
It’s important to file a gift tax return if you’re required to, even if you don’t owe any tax. One reason is that the IRS will need to track how much of your lifetime exclusion amount can be used to calculate your estate tax, if any, at the time of your death.
Plus, not filing a gift tax return could result in a penalty.
How Long Should You Keep Gift Tax Returns?
Keep a copy of your gift tax returns indefinitely. Again, reportable gifts follow you for your entire life and ultimately factor into whether or not your estate will be taxed. Make it easier on your heirs and keep records in a safe place that’s known by at least one trusted advisor or relative.
Annual Exclusion Rose in 2022 & 2023
Starting in 2022, the annual gift tax exclusion rose from $15,000 to $16,000 due to inflation. Use this figure when determining your Form 709 filing obligations in 2023.
Gift tax exclusions will be $17,000 in 2023 (for Tax Day 2024).
The details surrounding Form 709 and the filing of a gift tax return can get a little complicated, so you should consult a tax professional about your specific situation.
Next Steps for You
Determining gift taxes can be complicated. Be sure to talk to your tax advisor and personal financial planner for guidance in your specific situation.
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Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
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