As tax-filing season rolls around, you’re probably focused on your income or business tax returns—however, there’s also another type of return you may have to file. If you’ve made substantial gifts of wealth to family members in 2020, you may also need to file a gift tax return.
How to file a gift tax return
Generally speaking, if you’ve made gifts to or for someone during the year and those gifts exceed the annual gift tax exclusion ($15,000 per person for 2020 and 2021), you’ll need to file a federal gift tax return (Form 709)—although there are certain exceptions, such as gifts to U.S. citizen spouses. If your spouse is a U.S. citizen, an unlimited amount can be gifted—but gifts to a noncitizen spouse are subject to a separate exclusion ($157,000 for 2020 and $159,000 for 2021).
In addition, you’ll need to file a gift tax return if you make any gifts of future interests, even if they’re less than the annual exclusion amount. You’ll also need to file a gift tax return if you split gifts with your spouse, regardless of the amount.
The deadline for 2020 gifts is coming up soon—your return is due by April 15 of the year after you make the gift. However, it’s possible to file for an extension and extend the deadline to October 15.
Keep in mind that being required to file a gift tax return doesn’t necessarily mean you owe gift tax. Only taxpayers who have already exhausted their lifetime gift and estate tax exemption ($11.58 million for 2020 and $11.7 million for 2021) will owe tax.
An additional note: while the IRS has announced an extension of the federal income tax filing and payment due date from April 15, 2021, to May 17, 2021, it hasn’t specifically addressed the gift tax filing deadline. Additional guidance from the IRS is expected soon.
Exceptions to the gift tax return requirement
You’re not required to file a gift tax return if:
- Your spouse is a U.S. citizen and you made outright gifts to your spouse, in any amount, including gifts to marital trusts that meet certain requirements
- You directly paid qualifying educational or medical expenses to an educational institution or health care provider on behalf of someone else
- You made charitable gifts and aren’t otherwise required to file Form 709—though charitable gifts should also be reported if a return is otherwise required
- The gifts you made were of present interests and fell within the annual exclusion amount
Even if you aren’t required to, you should consider filing a gift tax return if you transferred hard-to-value property, such as interests in a family-owned business or artwork. This is because adequate disclosure of the transfer in a return triggers the statute of limitations, which means the IRS will generally be prevented from challenging your valuation more than three years after you file.
Under certain circumstances, it may even be advisable to file Form 709 to report nongifts. If, for example, you sold assets to a trust or a family member, filing a return will trigger the statute of limitations and prevent the IRS from claiming that the assets were undervalued and, therefore, partially taxable, more than three years after you file the return.
Need help filing? Contact us today
We know that state tax rules and regulations are complicated. Contact us today for help in determining whether you need to file a gift tax return.