To File or Not to File? A Gift Tax Return Doesn’t Always Have to Be Filed

Due to the generous $11.58 million lifetime gift tax exemption for 2020, fewer people are subject to federal gift taxes and many are wondering if they still need to file a gift tax return. Well, if your wealth is within the exemption amount, the answer is no. However, there are a few exceptions where it is necessary and even beneficial to file a “United States Gift (and Generation-Skipping Transfer) Tax Return.” (Form 709). 

It is assumed that all transfers of property by gift are taxable, but there are exceptions. Examples of these nontaxable transfers that do not need to be reputed are:

• Gifts of present interests within the annual exclusion amount
  •    Amount currently at $15,000 per donee
• Direct payments of qualifying medical or educational expenses on behalf of an individual
• Deductible charitable gifts
• Gift to one’s U.S.-citizen spouse, either outright or to a trust that meets certain requirements
• Gifts to one’s noncitizen spouse within a special annual exclusion amount

If any of your gifts fall under these exceptions there is no need to file a gift tax return. The gifts will most likely be considered taxable in the instances that they do not. If you are making gifts throughout the year, always be cognizant of whether you will be required to file Form 709. Gifting future interests, spousal gifts, gift splitting, or 529 plans may cause you to need to file Form 709. 

Further, even if you are not required to file Form 709, it may be beneficial to file voluntarily. In particular, if you make any annual exclusion gifts of difficult-to-value assets, for example, interests in a closely held business, you should file Form 709. 

To conclude, making gifts is a great way to benefit both your estate and your loved ones. It is also very important to contract your estate planning advisor to help you in determining whether you need to file a gift tax return.

See To File or Not to File? A Gift Tax Return Doesn’t Always Have to Be Filed, Insight on Estate Planning, May 12, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.