Financial gifts can be a great opportunity to support a loved one in a new stage of life. But did you know that you may have to report these gifts to the IRS?
Banks are obligated to report any withdrawals over $10,000, so the IRS will quickly become aware if you are not reporting large monetary gifts. These gifts are not always taxable, but if you do not report the gift, or report it incorrectly, you will face a significant fine. Make sure you are properly reporting the financial gifts you give to avoid these costly fees.
When Do You Need to File a Gift Tax Report?
You do not have to file a gift tax report as the receiver of a monetary gift. The IRS only seeks out gift tax forms for those who gift money over a certain amount.
Not every gift requires a gift tax report. The maximum total annual amount of money you can give to one person, or a married couple, changes from year to year. At the time of writing, you are allowed to gift up to $16,000 per year to a single person, or $32,000 per year to a married couple, without reporting it to the IRS.
While gifts above those numbers are reportable to the IRS, that doesn't automatically mean that the gift is taxable. It might be taxable depending on the current lifetime gifting amount, or the total amount of money you can give away during your life without tax liability.
The lifetime gifting amount increases frequently - at the time of writing, it recently rose from $11.5 million to $12.06 million. This total does not only include monetary gifts, it can also include material gifts such as a home. But not every financial gift above $16000 is considered eligible for gift tax. For example, if you are giving money toward a loved one's medical bill or college tuition, that is not counted towards gift tax.
How Do You File a Gift Tax Report to the IRS?
You have to file a gift tax report on a separate gift tax form: Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form cannot be submitted electronically, so online tax preparation software such as TurboTax will not be able to assist you in filing this return. Form 709 has to be mailed manually to the IRS.
We strongly discourage against self-preparing a gift tax form. These forms, as well as other forms regarding estates and trusts, are especially complicated relative to other tax forms. Even informational returns like the gift tax form can incur serious penalties if you fill them out incorrectly. Go to a tax preparer to file a 709 gift tax form.
If you are married or separated, your spouse must sign the 709 form as well to communicate consent of the gift. This form is a federal form only; New York State does not require reporting gift tax.
You will always save money by avoiding fines from the IRS, so be sure to fill out the gift tax form when required. Contact Detz and Taxes today for assistance with this form and other tax preparation matters.
