Gift Tax Return Definition

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Gift Tax Return Definition

What Is a Gift Tax Return?

A gift tax return is a federal tax return that must be submitted by the donor of a gift under specific circumstances. (There is no tax on returned gifts.) Form 709 is the name of the return.

Key Takeaways

  • Gifts costing more than $15,000 to a single recipient in 2021 ($16,000 in 2022) must be accompanied by a “gift tax return” together with their yearly tax return.
  • Some donations, such as those used to pay tuition or medical expenditures, are excluded from this restriction.
  • To be taxed in 2021, donations must exceed a lifetime sum of $11.7 million (indexed for inflation) to a single recipient ($12.06 million in 2022).

How the Gift Tax Return Works

Individuals who make a donation that exceeds the Internal Revenue Service’s (IRS) annual or lifetime exempt gift limit must complete the form while paying their taxes. In 2021, the yearly exemption limit is $15,000 per donation ($16,000 in 2022), and the lifetime exemption is $11.7 million ($12.06 million in 2022). Because the lifetime exemption is inflation-indexed, it will increase year after year.

If a person presents more than the maximum, even $16,001, to a single recipient in 2022, that individual must complete a gift tax return form. The return must be completed because donations in excess of the exempt amount are subject to gift tax.

Gift tax returns are only utilized by people who gave more than $15,000 in 2021 ($16,000 in 2022). Because the legislation governing gift taxes are quite complex, it is important to contact a professional as well as your local tax laws. Many individuals utilize estate planning to avoid the gift tax, working with a financial planner, tax expert, or attorney to carefully pick when, how, and who receives the estate owner’s money.

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Who Files the Gift Tax Return and Who Pays the Gift Tax?

A gift tax is a federal tax levied on a person who gives something of value to another person. To be deemed a gift, the receiving party cannot pay the sender the entire value of the item but may pay a lesser sum.

A gift tax return is a document that must be completed by a gift-giver if the amount given exceeds the gift tax exemption. Unless otherwise specified, the gift-giver, not the receiver, is always responsible for paying the gift tax and completing the gift tax return.

IRS Form 709 is used to file the gift tax return. If the donor has surpassed their lifetime gift exclusion limit, the recipient of the gift may pay the gift tax, or a portion of it, on the giver’s behalf.

Through a mechanism known as gift splitting, the federal government permits married couples who file jointly to double the amount of their gift tax. Married couples add their respective allowances together as if each contributed half of the total.

To make gift splitting legitimate, both spouses must agree to the gift and disclose the circumstances surrounding the gift while submitting their taxes. In 2022, a couple filing a gift tax return might contribute $32,000 before the donor had to pay taxes on the amount.

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