Gift Tax Returns and Penalties for Not Filing - Morton Law Firm (2024)

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Gift Tax Returns and Penalties for Not Filing - Morton Law Firm? ›

If you make a taxable gift to someone else, a gift tax return needs to be filed. If you fail to do this, penalties may apply. If you don't file the gift tax return as you should, you could be responsible for the amount of gift tax due as well as 5% of the amount of that gift for every month that the return is past due.

A penalty is usually charged if your Form 709 is filed after the due date (including extensions). It is usually 5% of the tax not paid by the original due date for each month or part of a month your return is late. The maximum penalty is 25%. You might not owe the penalty if you have reasonable cause for filing late.

A 20-percent accuracy-related penalty ( ¶2854) is imposed on the portion of an underpayment of tax that is due to a substantial estate or gift tax valuation understatement ( Code Sec. 6662(g) and (h)).

IRS Form 709 – Filing Requirements

Generally, Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return is required if any of the following apply: An individual makes one or more gifts to any one person (other than his or her citizen spouse) that are more than the annual exclusion for the year.

In 2019, the odds of an estate tax return being audited was just under 7% and for a gift tax return, the chances were slightly less than 1%. However, for taxable estates, especially relatively large estates that include hard-to-value assets, there is a much greater the chance for audit.

Gifts to charities.

If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities.

If you give more than the annual gift tax limit, you may have to file a gift tax return, but this does not necessarily mean that you'll owe taxes on the gift. The gift tax limit is $17,000 in 2023, up from $16,000 in 2022.

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form.

If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it. If that's the case, the tax rates range from 18% up to 40%. However, you won't have to pay any taxes as long as you haven't hit the lifetime gift tax exemption.

How much can you gift without tax reporting? ›

The basic gift tax exclusion or exemption is the amount you can give each year to one person and not worry about being taxed. The gift tax exclusion limit for 2022 was $16,000, and for 2023 it's $17,000. That means anything you give under that amount is not taxable and does not have to be reported to the IRS.

Givers, not receivers, pay the federal gift tax, but you can give away up to $12.06 million in cash or other assets during your lifetime (tax year 2022) without triggering the gift tax.

The gift tax applies to the transfer by gift of any type of 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.

Gift Tax Annual Exclusion

The annual exclusion amount for 2023 is $17,000 ($34,000 per married couple). That means you could give up to $17,000 (or a married couple could give a total of $34,000) in annual exclusion gifts to any child, grandchild or other person.

In an indirect skip, someone transfers money to an entity (such as a trust) that may eventually distribute assets to a skip person. Sometimes, a gift or bequest goes to a trust, and a skip person may receive assets from the trust, but they're not guaranteed.

Cash gifts aren't considered taxable income for the recipient. That's right—money given to you as a gift doesn't count as income on your taxes. Score! Everything from that $40 gift card to your favorite restaurant for your birthday to the $100 your friends pulled together when your tire blew out is yours to keep.

If those situations where no income tax is due (such as when sufficient income tax withholdings or estimated income tax payments were made), there are no FTF or FTP penalties assessed.

The IRS can impose penalties if they discover that you failed to file a gift tax return, even if no gift tax was due.