We pay lots of attention to income tax returns around here, but they’re not the only tax returns with a tax deadline on April 15th. If you made a significant gift during 2009, you will also need to file a gift tax return.
Update: The 2011 annual gift tax exclusion remains at $13,000.
Gift Tax Basics
In 2009 and 2010, the first $13,000 you give to any gift recipient is completely tax-free – this is called the annual exclusion. Spouses can each give $13,000 to a single recipient ($26,000 total), and you can give up to $13,000 to as many people as you want without paying taxes.
In addition, each taxpayer has a “lifetime exemption” of $1,000,000 that applies to all recipients. Once you have used up your $13,000 exclusion in a year, you start drawing against the $1,000,000 exemption. If you eventually gift more than $1,000,000 above your annual exclusion gifts, any additional gifts are subject to gift taxes of as much as 45%.
The following items are not considered gifts:
Transfers under the annual exclusion amount ($13,000 in 2009 and 2010)
Transfers to a spouse
Medical or tuition payments made directly to a medical or educational institution
Gifts to a political organization
In addition, contributions to charities are considered gifts but are not subject to taxes – if they are over $13,000, a gift tax return must be filed, but the entire amount can be deducted.
You must file a gift tax return using IRS Form 709 no earlier than January 1 of the year after the gift was made and no later than April 15. Each individual must file their own return – there are no joint returns. You must file a gift return for 2009 if:
You made a gift to one person or charity exceeding $13,000
You and your spouse made a gift of any amount and decided to make a “split gift election,” meaning the gift is 50% from you and 50% from your spouse
You made a gift of a “future interest,” such as the right to use land in the future or withdraw money from a trust in a certain number of years. Future interest gifts are not eligible for the annual exclusion.
If you cannot meet the deadline for your gift tax return, you can file an extension using Form 4868.
If you have complex gift issues, or are making a large gift for the first time, it’s a good idea to work with an accountant or tax preparer to make sure you cover all your bases. Finally, if you intend to make significant gifts in the future, consider working with a financial planner to create a gifting strategy that will help you minimize gift taxes over time.
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