IRS Form 709 discloses gift and generation-skipping transfer taxes. This form documents the taxable gifts you give to others throughout your lifetimes, such as cash or tangible property like real estate. It's also utilized to provide lifelong generation-skipping tax deductions when passing property to a recipient at least 3712 years younger than a donor. Donation or generation-skipping transfer tax may or may not be due even if Form 709 is included with your tax return for the year in which the gift was made. This guide is all about Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return.
Form 709: An Explanation with Examples
IRS Form 709 is the document that is used to record taxable gifts received during a taxpayer's lifetime. It is also the document that is used to distribute the generation-skipping transfers tax exemption that is available to a taxpayer during their lifetime. When a person dies and passes their property to their heirs, the estate is taxed according to its worth. If not for the federal gift tax, savvy philanthropists may avoid the estate tax by giving away their money tax-free during their lifetime.
Declaring gifts on Form 709 and paying any prospective taxes that may be owed prevents the Internal Revenue Service from missing out on revenue in the event that there is no property left to pass on following a person's death. If you transfer cash or property, you may be required to file IRS Form 709 as well as pay gift tax, but there are various exceptions to be aware of.
Who Fills Out Form 709?
The giver, not the receiver, is responsible for any taxes due on a gift. If the donations aren't exempt, the contributor must also complete and submit IRS Form 709 to the IRS. Gift tax occurs when a receiver doesn't pay fair market value for a transferred property. If a parent were to give their house to their kid for $1, the difference between the fair market value and the amount actually paid would be subject to the gift tax. That would need to be reported on IRS Form 709.
Traps to Avoid
Consider if Form 709 is necessary if you provide presents throughout the year. And avoid these common mistakes:
Future interest gifts, such as most trust transfers, are not exempt from gift tax and must be reported on Form 709 even if each recipient receives less than $16,000 in the gift. But be aware that it is feasible to fulfill the current interest criterion for trust donations by granting beneficiaries Crummey withdrawal privileges.
If you want your spouse's benefit to qualify as a tax-free transfer, you must ensure that the trust provides that your spouse gets entitled to all the trust's income for life, paid at least yearly, and that your spouse has a general power of nomination over the trust's assets. If the donation is not disclosed, it cannot be accepted. Gifts to something like a non-citizen spouse must be declared if they exceed $164,000 annually, whether openly or in trust.
Even if only one partner signed the check, married couples have the option of "splitting" gifts given to their children or other beneficiaries so that each partner is considered to have contributed one-half of the total amount. In 2022, married couples may pool their yearly exclusions to make gifts totaling up to $32,000 to their beneficiaries. The donor spouse must submit Form 709, as well as the other spouse must agree or file a new gift tax return. If you choose this option, remember that both you and your spouse should divide any gifts to third parties over the year, regardless of how much they give.
When you give to a 529 college investment plan, you can make a one-time gift of up to 5 times the annual exclusion for gift taxes per recipient, or you can spread the gift out over five years. This means that, for example, you may give $80,000 ($160,000 if you share the gift with your spouse) to something like a beneficiary's 529 plan and regard the contribution as being made taxable over the course of the five years. For gift tax purposes, the whole transfer will be exempt since the sum each year doesn't exceed the yearly exclusion level. An election on Form 709 is required if you want to take advantage of this benefit.
Downloadable form 709 may be found on the IRS website. This form is available for free download and used when submitting your tax return to declare exemptions from gift and generation-skipping taxes. Although the form has been five pages lengthy, depending on the facts you're submitting for the year, you may not even need to complete all parts. Mail your paper tax return and Form 709 to the IRS if you're doing it that way.