Form 709 Gift Tax

 

Ø  WHAT IS GIFT TAX? 

      The Federal gift tax is reported annually on Form 709. 

      To arrive at taxable gift, deductions and annual exclusion are allowed based on situation. 

      Generally, gift tax is applied at a rate of 40% on the taxable gifts for the year.

   With an intention to no tax smaller transfers of property, annual exclusion is taken to reduce the taxable gift to zero; which is $17,000 for 2023. 

    Gifts of future interest are not eligible for annual exclusions. For Example: Remainder Interest 

      Any amount paid for federal tax-exempt municipal bond is taxable gift.

Ø  WHAT IS GENERATION SKIPPING TRANSFERS?

It is like a penalty for passing assets to certain younger generations. It applies to both lifetime and deathtime transfer. GSTT is added to the gift or estate tax.

GSTT prevents from transferring assets to younger generation, which helps in reducing the present value of the transfer tax on assets that older generation has accumulated.

Ø  Who pays gift tax , how value of gift tax is determined, what is exclusion?

The Donor is liable to pay Gift Tax. A gift is complete when donor has ceased to have dominion and control and has no power on gift being made.

All the gifts are valued at FMV on the date of the gift.

Two types of deductions (Marital and charitable) reduce the amount of taxable gift. Most transfer to one’s spouse generated marital deduction, there is no ceiling on amount of this deduction. 

Most transfers to Charitable organizations are cancelled by the Charitable contribution deduction, which is also unlimited.

The unified tax credit of $5,113,800 which is tax on $12,920,000 is available for 2023.

 

Ø  What is gift splitting?

Spouses who elect gift splitting, treat gifts made by one spouse to third party as if each spouse made one half of the gift.

As a result, spouses in common law states can achieve the same benefits that apply automatically for gifts of community property.

Thus both spouses can claim a $17000 per done exclusion.

For Example: Jack and Julie, residents of a common state are married throughout 2023. Jack made gift to his friend Sam $50,000.

Option 1: No Gift Splitting

Jack Taxable Gift will be $33,000 (i.e $50,000 Less $17,000).

 

Option 2: Gift Splitting

Jack splits the gift with Julie Now(i.e each person gifted $25,000bto Sam)

Jack Taxable Gift will be $8000 (i.e $25,000 Less $17,000)

Sam Taxable Gift will be $8000 (i.e $25,000 Less $17,000)

So here gift eligible to tax will be $16000, whereas it was $33000 in Option 1

*Unified Tax Credit will effect both

 

Ø  who is required to file gift tax return?

A Tax Form 709 has to be filed even though there is no gift tax payable, if during calendar year the donor makes gift other than:
 

a)     Gifts to the spouse that qualify for marital deduction.

b)     Gift that fall within annual exclusion limit.

c)     Gift exempted from classification as gift under the exception for educational or medical expenses.

d)     Gift to charitable organizations.

e)     If gift to the spouse is of QTIP.

 

Ø  What is the due date of filing gift tax return?

         All gift tax returns must be filed by April 15.

An extension of time to file Form 1040  is deemed to automatically extend the filing date of gift tax return.

Compiled by

Ca. Harsimran kaur