The 709 form is used to report to the IRS any taxable gift money related to gifts or generation-skipping transfer taxes. The form is called the United States Gift (and Generation-Skipping Transfer) Tax Return.
How does the 709 tax form work?
The 709 form is used to report taxable gifts made during the taxpayer’s lifetime, and it also allocates the taxpayer’s generation-skipping transfer tax exemption.
You must file Form 709 if:
- You are liable for gift tax on gifts exceeding the annual exclusion
- You wish to allocate gifts to your gift tax exemption
- You want to split gifts with your spouse
Who uses Form 709?
The recipient of the gift is not responsible for this tax; the person who gave the money as a gift must file Form 709 and pay any tax due – if the gift is taxable. Generally, the gift tax applies to the transfer of property from one person to another when the recipient does not pay fair market value in return.
Where can you get Form 709?
The IRS provides the interactive Form 709 on its website. You can fill out the form online and then save and print your completed copy.
How to fill out and read Form 709?
You must fill out Form 709 if the total value of gifts you give to one person during the same calendar year exceeds the annual limit, which was $16,000 for 2022 and $17,000 for 2023.
The first part of Form 709 is for general information. It includes a series of questions and fields designed to identify yourself and the nature of the gift or gifts.
The second part of Form 709 guides you through the process of calculating any tax due.
Schedules A, B, C, and D on pages 2 to 5 of the form allow you to utilize certain tax provisions to avoid paying gift tax. For example, you can apply the 2022 annual exclusion of $16,000 to a gift and only pay tax on the remaining balance, or you can apply your gifts to the lifetime unified credit until you completely avoid paying gift tax on the gift made in 2022.
Annual exemptions for gift taxes
The annual exclusion for the gift tax is an important detail. Technically, you can give your child $16,000 on December 31, 2022, and $17,000 on January 1, 2023, meaning you won’t pay gift tax, as the gifts were made in separate tax years.
The exclusion for the gift tax is considered per person, each year. For example, you can give your child $16,000 on December 31, 2022, and your spouse $16,000 on the same date, as the exclusion is considered for each person, each year.
Let’s look at another example. If you made a taxable gift of $16,000 to your child to buy a car and another $16,000 to pay off his credit card debt in 2022. This means you gifted him $16,000, and thus you will need to file Form 709.
Splitting Gifts
Married couples can “split” their gifts between each other to double the annual exclusion.
For example, your spouse can give your child $10,000 to buy a car and another $10,000 to pay off his credit card debt. He can file Form 709 and report that he made a taxable gift – the balance between the $20,000 gift and the annual exclusion for that tax year – or he can file Form 709 and report that both of you chose to split the gifts between you. In this case, each of you will be considered to have given a gift of $10,000, and both of you will be under the annual exclusion. No tax will be due, even if the entire $20,000 came from your spouse’s personal account.
The Credit
Unified Exemption for Lifetime
The U.S. tax law also provides a lifetime exemption from gift taxes. Suppose you gave your child $30,000 and paid gift tax on the difference between that amount and the annual exemption. If you prefer, you can allocate that $30,000 to the lifetime exemption.
For 2022, you can give up to $12.06 million over your lifetime without paying any gift tax. For 2023, this limit is $12.92 million.
However, there is a condition. The federal gift tax and estate tax share this exemption, which is why it is called the “unified credit.” Suppose that over your lifetime, you gave gifts totaling $500,000. You also have a net worth of $10 million. If you died in 2023, the value of those gifts would be added to your net worth, making it $10.5 million. Since this does not exceed the exemption limit for 2023 of $12.92 million, there would be no need to file an estate tax return.
Some Gifts are Exempt
The unlimited marital deduction covers gifts made to spouses who are U.S. citizens. You can give your spouse as much as you want, either before or after your death, without paying tax.
However, gifts made to a non-U.S. citizen spouse are subject to tax. The minimum is $164,000 for 2022, and $175,000 for 2023. Gifts that exceed this amount are subject to the gift tax.
You can pay someone’s educational or medical expenses directly to the institution or care provider without incurring gift tax. Gifts to charities and political organizations are also exempt from tax.
Requirements for Filing Form 709
Form 709 allows the IRS to know how you wish to handle the tax. It is a way to document the transaction, even if no tax is owed.
Form 709 must be filed by tax day, typically around April 15 of the year following the year in which you made the taxable gifts. If you find you must file Form 4868 with the IRS to request a six-month extension to file your personal income tax return, this form extends the time you have to file Form 709. You do not need to take any additional action or submit an extra form.
You can also file Form 8892 with the IRS to request a six-month extension to file Form 709 if you do not need to extend the time for filing your personal income tax return.
Frequently Asked Questions
How do you fill out Form 709?
To fill out Form 709, you will need some information from Schedules A, B, C, and D, which you can find on pages 2 through 5 of the form. On page 1, there are two sections to fill out: the first part for general information like your name, address, and tax status,
Source: https://www.thebalancemoney.com/when-to-file-gift-tax-return-3504960
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