When do I have to file a tax return for a gift I make?

Gifting into a tax return

While it is not a subject that most people consider often, there are circumstances where a person can make a gift and be required to file a tax return covering the gift and potentially paying tax on the gift. Most people are aware that if you die owning a large enough estate you may have to pay the IRS tax. Many people are also aware that there is an exemption, this year in the amount of $5.3 million, under which you are not required to file a return or pay taxes to the IRS.  What a lot of people don’t think about is that the exemption can be whittled down based on gifts a person makes during their lifetime.

The Annual Exclusion

One way to avoid reducing the lifetime exemption is to take advantage of the annual exclusion.  Each person is entitled to make an unlimited number of gifts each year without any tax consequences provided that the gifts do not exceed the annual exclusion, which in 2014 is $14,000.00. Gifts above the $14,000 number require that the person making the gift file a gift tax return.

What the IRS say about gifts

As the IRS states:

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

 The key points

So, here is a summary of how it breaks down:

• You can gift up to $14,000.00 to just about any person without  return required or tax being owed;
• You can gift more than $14,000.00 each year to your spouse without a return required or tax being owed;
• If you gift over $14,000.00 to a person this year, you will need to file a federal gift tax return, IRS Form 709.  The IRS Form 709 is due on or before April 15 of the year following the year that you have made taxable gifts.

Remember however that the rules on gift taxes like many other taxes are complicated. You should consult a tax professional before making any final decisions including the decision whether you need to file a return or not