Understanding Gift Tax Returns: A Modern Overview
Explore the essentials of gift tax returns, including filing requirements, exemptions, and how the IRS handles gift taxes in today's financial landscape.
Julia Kagan is a financial and consumer journalist and former senior editor of personal finance at Investopedia.
What Is a Gift Tax Return?
A gift tax return is a federal tax document that individuals must submit when they give gifts exceeding the IRS's annual exclusion limit. Contrary to what the name might suggest, it is not a tax on receiving gifts but rather a reporting requirement for the giver. This return is filed using IRS Form 709.
Key Highlights
- For 2023, any gift exceeding $17,000 to a single recipient requires filing a gift tax return.
- Certain gifts, such as payments made directly for tuition or medical expenses, are exempt from filing.
- Gifts surpassing a lifetime exemption of $12.92 million (adjusted for inflation in 2023) may be subject to gift tax.
How Gift Tax Returns Operate
When an individual gifts an amount over the annual or lifetime exemption limits set by the IRS, they must report it on Form 709 during tax filing. The annual exclusion for 2023 is $17,000 per recipient, while the lifetime exemption stands at $12.92 million, indexed annually for inflation.
For example, gifting $17,001 or more to one person in 2023 triggers the requirement to file a gift tax return. This is necessary because amounts exceeding the exclusion may be subject to taxation.
Due to the complexity of gift tax regulations, consulting with a tax professional or estate planner is highly recommended. Many individuals use strategic estate planning to manage gift taxes effectively, deciding how and when to transfer assets.
Who Is Responsible for Filing and Paying Gift Taxes?
The gift tax applies to the donor who transfers property or money without receiving full value in return. The recipient’s payment less than the gift's full value classifies the transaction as a gift.
The donor is responsible for filing Form 709 if gifts exceed the exemption limits, as well as for paying any associated gift taxes. However, in certain cases, the recipient may cover some or all of the tax if the donor has already exceeded their lifetime exclusion.
Married couples filing jointly can leverage "gift splitting," effectively doubling their annual exclusion to $34,000 in 2023. This means they can jointly gift this amount before any gift tax filing is required.
To apply gift splitting, both spouses must consent to the gift and disclose this arrangement on their tax returns.
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