During the holiday season, most people are feeling charitable and are planning to give gifts to those they love. They may be considering gifting cash or property, and may not be aware that they may have to file a gift tax return form 709 with the Internal Revenue Service, or may be obligated to pay taxes on the value of their gifts, although this is unlikely given the current lifetime gift tax exclusion of one million dollars.
You may ask why is a tax assessed on gifts? Quite simply, gift tax laws were enacted so that individuals could not gift all of their property away during their lifetime, in order to avoid paying federal estate taxes.
As noted above, however, given the current lifetime gift tax exclusion of one million dollars, only a very small number of individuals actually pay gift taxes. For example, it was reported that in 2007, only 8,400 individuals who had given gifts, actually had to pay gift taxes. However, the obligation to file a gift tax return form 709, is more often required for the reason that if a person gets more than $13,000.00 (in year 2010) to any one individual, whether it is a gift of cash or property, a gift tax return must be filed. I emphasize property because individuals whom I've conferred with, do not realize that if a person conveys an interest in their bank account, home or other property to one of their children, and the value of the interest conveyed to that child exceeds $13,000.00 in 2010, that parent will have to file a gift tax return.
There were certain gifts which are not taxable gifts. For example, as noted above, in 2010, you are able to give up to $13,000.00 in money and/or property to any individual, without having to file gift tax return. Other exceptions to gift taxes include an exclusion for money which you pay directly to an educational institution or to a medical care provider for someone else, and gifts which you give to your spouse. Given the changes in the tax laws and the uncertainty as to what gift tax laws will be enacted by Congress this year (2010) and hereafter, it is important for you to confer with your attorney or CPA prior to gifting.
Published in the December 2010 issue of Generations newspaper.