Generally, you do not need to file a gift tax return (Form 709) unless you give someone, other than your spouse, money or property worth more than the annual exclusion amount, currently $13,000 for 2012, now indexed for inflation. You may make as many $13,000 annual gifts as you wish to any number of individuals, without being required to file a gift tax return.
- If any gift to an individual exceeds the annual exclusion amount, a gift tax return must be filed. If you elect to use part of your lifetime exemption against the gift portion in excess of $13,000, you will not incur any gift tax when you file the return.
- You and your spouse can give $26,000 to an individual. However, if the husband writes a check for $26,000, you must file Form 709 to elect to split the gift.
In addition to the $13,000 annual exclusion from gift tax, there are several other items you can pay on behalf of an individual that are exempt from gift tax:
- Tuition paid to a qualified educational organization or institution. To be “qualified,” the school must be qualified to receive charitable contributions. If you pay your grandchild’s tuition, you do not get a charitable deduction, as you are receiving services for your tuition. The check must be made payable to the school—not as a reimbursement to the parent.
- Medical payments on behalf of an individual. Again, the check must be payable to the doctor, hospital, insurance company, etc.
- Transfers to a political organization for its own use.
- Transfers to a spouse.
- Charitable gifts fully eligible for charitable deduction.
Examples:
- You can pay your grandchild’s tuition to Harvard for $30,000, send a check to their doctor, give the child $13,000, and still not be required to file a gift tax return.
- You can give $50,000 to the Red Cross, and not file a gift tax return. (Obviously, this would qualify for a charitable deduction on your Form 1040.)
- You can give $23,000 to the Democratic or Republican party, and not file a gift tax return. However, this does not qualify for a deduction on Form 1040, as political contributions are no longer deductible.
Gift tax returns are filed on Form 709, U.S. Gift Tax Return.
- The return for 2011 is due April 17th, but can be extended with Form 4868.
Paying the Gift Tax
The current gift tax rate ranges from 18%-35%. This is imposed on the gift that is in excess of $13,000 to any one individual. If you have not already gifted your lifetime exclusion ($5,120,000 through 2012), you can use part of your lifetime exclusion against the current gift, and not pay the current tax due.
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For example, if you give your daughter $50,000:
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Gift:
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$50,000
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Annual Exclusion:
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($13,00)
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Balance:
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$37,000
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Lifetime Exclusion:
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($37,000)
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Balance
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0
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assuming you have not gifted $5,120,000 in the past.
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If this is your first gift greater than the annual exclusion ($13,000), your new lifetime exemption is reduced by $37,000—or to $5,083,000.
Practical Pointer
Normally, a gift tax return is not required if the gift is sheltered by the annual exclusion ($13,000). However, the statute of limitations does not begin until adequately disclosed on a gift tax return. Therefore, some practitioners advise filing gift tax returns to report gifts below the annual exclusion amount if there could be a question concerning the value of gifted property. This is not an issue if gifting cash; however, if you are gifting pieces of property, etc., this can be an issue.
If you would like more information regarding this topic or any other tax related issue, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
