What is The Purpose of Form 709

What is The Purpose of Form 709

DEFINITION

The Internal Revenue Service requires that you submit Form 709, the United States Gift and Generation-Skipping Transfer Tax Return, to report any taxable gifts you may make throughout your lifetime.

Form 709 Definition and Examples

The allocation of a taxpayer’s lifetime use of the generation-skipping transfer tax exemption is done using IRS Form 709, which is also used to report a taxpayer’s lifetime taxable gifts.

When a person passes away and leaves their property to beneficiaries, the value of large estates is taxed. If not for the federal gift tax, a cunning benefactor could avoid the estate tax by distributing their generosity tax-free while they were still alive.

Giving ensures that the IRS doesn’t lose out because there is no property left to transfer after death by reporting gifts on Form 709 and any potential tax that may be due.

You might be required to submit IRS Form 709 and pay gift tax if you make one or more money transfers or property, but there are a few exceptions that you should be aware of.

Who Uses the 709 Form?

This tax is the donor’s responsibility and not the recipient of the gift. If the recipient’s gifts are not exempt, they must complete Form 709 and submit it to the IRS.

The gift tax is generally imposed on property transfers when the recipient does not compensate the donor with the fair market value.

The gift tax would be due on the difference between the home’s fair market value and what was paid if a parent gave their child their house for the sum of one dollar. It would be necessary to submit IRS Form 709.

Note: Forgiving a loan or canceling a debt that someone owes you are also regarded as gifts, as is giving someone a loan without charging interest.

Get Form 709 Here

The IRS makes a Form 709 that is interactive and available online. It is possible to finish it online, save it, and print the result.

Form 709: How to Complete and Read

If the sum of all gifts you give to one person within the same calendar year exceeds $15,000, you must submit Form 709.

In the tax year 2021 (and the few years prior), this $15,000 threshold will serve as the annual exclusion; in the following year, it will increase to $16,000.

A series of questions and blanks in Part I of Form 709 are used to identify you and the type of your gift or gifts. After that, Part II guides you through the procedure of calculating any taxes owed.

You have the choice to use specific tax provisions to evade gift tax in Schedules A through D.

You can, for instance:

  • Apply the annual exclusion of $15,000 to a gift and only pay taxes on the remaining amount.
  • Use the lifetime unified credit to offset your gifts so you can completely avoid paying gift tax.

Every Year Exclusion

A crucial distinction is made by the word “annual” in “annual exclusion.” In theory, because the gifts were made in different years, you could have given your child $30,000 on December 31, 2020, and another $30,000 on January 1, 2021, both of which would have avoided gift tax.

The gift tax exclusion is calculated per person and annually. As an illustration, given that the exclusion is per person per year, you could have given your spouse and child each $15,000 on December 31, 2021.

Let’s examine a further illustration. If you give your child $15,000 to purchase a car and another $15,000 to settle their credit card debt in the same tax year, for a total of $30,000 (less than $15,000 exclusion for the year), you have made a taxable gift of $15,000.

Remember that the annual exclusion can only be raised by $1,000 increments and was last adjusted for inflation in 1997. As a result, it may increase yearly, but not by an amount greater or less than $1,000. The exclusion was $13,000 in 2009, 2010, 2011, and 2012; it was $15,000 in 2018, 2019, 2020, and 2021. 2022 will see a $16,000 increase.

Your Gifts Are “Split”

Married people can double the annual exclusion by “splitting” their gifts between them.

Your partner may give your kid $10,000 to buy a car and another $10,000 to pay off credit card debt. The balance of the $15,000 annual exclusion can be reported on Form 709 as $5,000 in taxable gifts, or it can be reported on Form 709 that the two of you have chosen to split the gifts between you. In that case, each of you would be regarded as having made a gift of $10,000, falling under the $15,000 annual exclusion. Even if the entire $20,000 came from a single account held in your spouse’s name, no tax would be owed.

Lifetime Unified Credit

According to the Internal Revenue Code, there is also a lifetime exemption from gift taxes. Again using the $30,000 gift to your child as an example, you have the option of paying the $15,000 remaining in gift tax or effectively charging it to your lifetime exemption.

It’s true that you won’t have to pay gift tax on transfers of up to $11.7 million made in 2021, but there’s a catch. This exemption applies to gift and estate taxes, hence the name “unified credit.”

Over and above the annual exclusion amounts, if you give your child $500,000 in gifts over the course of your lifetime, this is deducted from your lifetime unified credit. You’d have $11.2 million to avoid paying your estate taxes when you pass away.

Note that this lifetime exemption is also inflation-indexed and subject to yearly change. In 2021, it was $11.7 million, and in 2022, it will be $12.06 million.

A few presents are exempt.

Gifts given to spouses who are citizens of the United States are eligible for an unlimited marital deduction. You are not required to pay taxes on any gifts you make to your spouse before or after your passing.

However, gifts given to a spouse who is not a citizen of the United States are taxed. For 2022, the cap is $164,000 per person. Gift taxes apply to donations that are made in excess of this amount.

As long as you pay the institution or the healthcare provider directly, paying someone else’s tuition or medical costs won’t trigger the gift tax. Political and charitable donations are both exempt from taxes.

Important: If you’re unsure whether gifts you made throughout the year need to be reported to the IRS on Form 7009, speak with an estate planning lawyer or accountant.

Can I electronically file Form 709?

Your Form 709 must be submitted to the IRS the traditional way. Only paper copies of this return, sent in USPS-addressed envelopes, are accepted by the IRS. The form cannot be submitted electronically.

How to Send Form 709

The Internal Revenue Service Center, Kansas City, MO 64999 is where IRS Form 709 should be sent by mail.

Form 709 Filing Requirements

You must submit Form 709 if:

  • You will pay the tax on gifts that exceed the annual exclusion.
  • The gifts will be added to your lifetime exemption.
  • You and your spouse want to share the gifts.

You can tell the IRS how you want to handle the tax on Form 709. Even if no tax is owed, it serves as a way to record the transaction.

On or before April 15 of the year that follows the year in which you make the taxable gifts, you must submit IRS Form 709. IRS Form 4868 extends the deadline for filing IRS Form 709 if you find that you need to file it to request an automatic six-month extension for your income tax return. There are no extra steps or forms that need to be filled out.

If you don’t need an extension to file your individual tax return, you can also file IRS Form 8892 to get a free six-month extension to file IRS Form 709.

Major Points

  • The IRS Form 709 is used to report gifts that exceed the annual exclusion and specifies whether gift tax is being paid now or if you would prefer to defer payment until your death.
  • Gifts that are taxable must be reported on Form 709, and the donor must pay any associated gift taxes.
  • To claim a lifetime exemption, you need to check a box on the five-page form. It will assist you with calculations and direct you past the schedules that do not apply.
  • Form 709 must be submitted by Tax Day, which is typically April 15 of the year after the year in which taxable gifts are made.

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