Return Filing Requirements for Federal Gift Tax
The IRS defines a gift as a transfer of money or anything else of value that is made without receiving "full consideration" in return. According to the IRS, "any gift is a taxable gift," although in reality there are exceptions that make most ordinary gifts tax-free. But those gifts that are subject to federal tax must be reported on a special tax return with its own filing requirements.
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Report All Non-Excluded Gifts
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Most gifts fall under one of four exclusions in the gift tax: First, if you pay medical or tuition expenses for someone, it is considered a gift, but it is not taxable.
Second, gifts you give to your spouse are not taxable. Third, gifts you give to a political organization or charity are not taxable. Fourth, gifts that are smaller than the "annual exclusion" are not taxable. This fourth exclusion covers most non-taxable gifts.The annual exclusion is an amount set by Congress. You can give any person any amount up to the exclusion limit every year without paying the gift tax. For the 2009 tax year, the amount was $13,000. There is a separate exclusion for each donor-recipient relationship, meaning that you could give an unlimited number of people $13,000 each without having to pay gift tax, and a person could receive $13,000 gifts from an unlimited number of people. In the case of spouses giving gifts to another person, each spouse gets a separate exclusion, meaning the couple can give up to $26,000 per recipient per year.
The annual exclusion applies to gifts of items other than money, too. A gift of a car, for example, is not taxable if the market value of the car is less than $13,000. If the car is worth more than that, then the amount over $13,000 is subject to the federal gift tax.
All gifts that are not covered by these exclusions are subject to gift tax and must be reported on a gift tax return.
Giver Pays the Tax
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Unlike the tax on earned income, which is paid by the recipient, gift taxes are paid by the donor. After all, it's not much of a gift if the recipient has to pay taxes on it. A recipient may agree to pay the gift tax on behalf of the giver; in such cases, consult a tax professional to discuss the tax implications.
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File Form 709
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Taxable gifts must be reported on IRS Form 709. You only need to file one Form 709 to cover all gifts for a calendar year. Include with the form any necessary documentation, such as appraisals or explanations of unusual items.
The form is filed separately from your income taxes, although the filing deadline is the same: April 15 of the year following the year for which the tax is being reported. Further, if you request an extension for filing your income tax return, you'll automatically be granted an extension for your Form 709. You can request an extension only for your gift tax return by filing Form 8892.
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