When it comes to federal income tax filing, most of us think of Form 1040. But if you made gifts in 2017, you also might have to file Form 709, a gift tax return.
When to file Form 709
The IRS has detailed specific circumstances in which Form 709 must be filed. In general, you must file this form if you gave gifts exceeding the $14,000 annual gift tax exclusion to any person in 2017, other than your spouse.
Conversely, Form 709 generally doesn’t have to be filed if you didn’t give more than $14,000 last year to any individual. And if you made tax-deductible gifts to qualified charitable organizations in 2017, you generally don’t have to file a gift tax return as long as you transferred your entire interest in the property you donated.
There are a few nuances to gift tax return filing requirements. One has to do with gifts given as remainder interests in a trust. If you gave gifts of this kind in any amount in 2017, you generally must file Form 709.
Also, if you made gifts that you want to split with your spouse to take advantage of your combined $28,000 annual gift tax exclusions, you’ll generally be required to file a gift tax return. Gifts of jointly held property or community property are treated as though they were made equally (50 percent) by both spouses. Thus, unless you gave an individual more than $28,000 from a joint account or community property asset, you may not have to file a gift tax return.
Note that you may have an obligation to file Form 709 even if no gift tax is ultimately due.
How to handle hard-to-value assets
Perhaps you gave away assets last year that are hard to place a specific value on. Examples of these might be fine art or shares in a family-owned business.
In either of these scenarios, it may be wise to file a gift tax return — even if doing so isn’t required. This will begin the statute of limitations should the IRS decide to challenge the value of the gift.
The deadline for filing (or extending) Form 709 and paying any gift tax due is April 17 for tax year 2017.
This has been a brief outline of gift tax issues and is not intended as advice. Taxes can be complicated, so it may be wise to consult a knowledgeable professional.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners LLC (GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 254-3880.