A Primer on Gift Taxes Laws
When you give your family, friend, or anyone in particular a sum of money or a valuable property, these may be subject to a federal gift tax. In general, when your gift had dramatically increased your recipient’s or donee’s income, then, your gifts are subject to gift taxes when they exceed a certain allowable amount. Know that if you give gifts in a form of passing on your estate to your descendants, you may also be subject to a GST ( Generation-Skipping Transfer ) Tax, considering that the person is more than a generation younger than your age. Since gift tax laws can be complex in nature, there are many gifts that are not subject to gift taxes. However, if you have received a gift that increases your wealth, you need to file gift tax returns using the IRS Form 709, for both gift tax and generation-skipping transfer tax returns.
When provisions on the Economic Growth and Tax Relief Reconciliation Act of 2001 had been made, these changes mean that applicable gift tax limit amounts will soon expire on December 31, 2010. As of the current limit, individuals have exclusions of $13,000 a year, $26,000 annually for married couples, and a lifetime gift tax limit of $ 3,500,000. Although the gifts you have received may be taxable, you cannot declare the value of these gifts as income tax deductibles. The real deal with reducing or getting rid of gift tax for good is by making a unified credit to have higher annual limit, and this can be done by married folks through a separate gift tax filing.
Top Ten Information You Need to Know About A Gift Tax:
1. Know that if you are a citizen or a resident of United States, you are subject to gift taxes when applicable.
2. The IRS Form 709 must be filled by an individual. Husbands and wives may file separately, dividing gifts under each one’s form to reduce or wipe off federal gift taxes.
3. When a company, trust, estate, corporation, or a partnership give gifts, their partners, beneficiaries, or stockholders may be subject to a gift tax.
4. The donor is responsible for filing the gift tax return and paying for applicable taxes. Failure to do so may force the recipients to pay gift taxes on gifts instead.
5. If the donor suddenly dies before having filed a gift tax return, the responsibility of doing so now lies on the donor’s executor.
6. Gifts to a minor maybe excluded form the federal gift tax if the donee uses its benefit before he or she reaches the age of 21, if all remaining gifts are passed on to the minor on his or her 21st birthday, or if the minor dies before he or she even reaches the age of 21.
7. Typical gift tax exclusion includes those that don’t exceed the yearly allowable limit, those used for tuition and medical expenses, gifts to a spouse, gifts to political groups, and gifts given to charity.
8. If you need time to file your gift tax return, you may file the IRS Form 8892 and request for a 6-month filing extension.
9. Nonresidents are subject to the US federal gift tax on any properties or gift assets located within the United States. If your spouse is a non-US citizen, you can have an outright total of $128,000 on gift tax exclusions.
10. Unless you have a reasonable excuse not to file your gift tax return on time, you may then be charged late payment penalties.
Remember that keeping receipts and other documents will have a great reward, specially when declaring your gifts’ true value with the IRS. You need to keep copies of appraisals made and documents relating to your unusual finds. Remember to play fair and square through declaration of your gift’s fair market value, which is the selling price of the gift if it were sold without pressure to both buyer and seller. Know that preparing a gift tax return can be a lot of work and you need to have the best lawyers and CPAs in town to help you out. You may order an IRS Form 709 by calling the IRS toll-free hotlines: 1-800-TAX-FORMS (1-800-829-3676), or TTY/TDD: 1-800-829-4059. You may also download the form at IRS online ( www.irs.gov ). It Truly Pays… To Pay Taxes!
RESOURCES:
IRS.Gov. “ Frequently Asked Questions on Gift Taxes. “ October 2008.
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
IRS.gov. “ What’s New: Estate and Gift Tax. “ October 2008.
http://www.irs.gov/businesses/small/article/0,,id=164878,00.html
IRS.gov. “ Publication 950: Introductory Material. “
http://www.irs.gov/publications/p950/ar01.html
IRS.gov. “ Publication 950: Main Contents. “
http://www.irs.gov/publications/p950/ar02.html
Internal Revenue Service. “ Instructions for Form 709. “ 2008.
http://www.irs.gov/pub/irs-pdf/i709.pdf
