Hyden, Miron & Foster, PLLC Law Blog

Wednesday, November 13, 2019

Gift Tax Returns

If you have a larger estate and have thought about or begun the estate planning process, you may have considered ways to avoid estate tax. Large estates are taxed on their value when the testator dies and leaves his assets to beneficiaries. One way people look to avoid the estate tax is by doing things like gifting assets during their lifetime.

In order to help prevent people from skirting estate tax obligations through lifetime gifts, a federal gift tax was enacted. The federal gift tax is intended to aid in the prevention of the IRS getting cut out of what would have been included in an estate for federal estate tax purposes.

What is a gift tax return?

If a person gives an individual a gift that is greater in value than the annual or lifetime exempt gift limit that has been established by the IRS, they must pay a federal gift tax that is calculated and filed using the federal gift tax return, IRS Form 709. For 2018 and 2019, the gift tax exemption is $15,000 a year per individual. Any gift valued greater than $15,000 will be subject to tax on the amount that exceeds the exemption amount. It is important to note, also, that the federal government lets married couples filing jointly double this exemption amount through a process referred to as “gift splitting.”

With gift splitting, each spouse essentially combines their individual gift exemption allowances for the year as if each of them had contributed half of the amount of the gift. This means that, instead of a $15,000 individual exemption, the couple effectively gest a combined gift exemption of $30,000 before any gift tax liability would kick in. For gift splitting to work, however, both spouses must agree to the gift and specify the gift-giving situation when they file their taxes.

For gifts that are not cash, the fair market value of the asset will be used to determine the amount of the gift for taxation purposes. The fair market value, according to the IRS, is the price that the property would be exchanged for between a willing buyer and a willing seller. The willingness means that both the buyer and the seller were not under any compulsion and had reasonable knowledge of all relevant facts relating to the property.

The gift tax return form must be filed by the giver of the gift. It is the giver, not the gift recipient, who is on the hook for paying any gift tax assessed, unless some sort of special arrangement has been made. The gift receiver may have agreed to pay the gift tax or a percentage of the gift tax on behalf of the gift giver.

Trusted Gift and Estate Tax Attorneys

For trusted legal counsel regarding all gift and estate tax matters, Hyden, Miron & Foster, PLL are here for you. To planning your estate with these kinds of taxes in mind, to filing the necessary tax forms should the need arise, you can count on us. Contact us today.

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