While you may choose to make a gift to others based on your own generosity, these types of transfers may be a taxable event, according to the IRS. A gift giver is responsible for reporting the gift and paying the taxes. Exclusions apply to what is considered a gift, and how much you are allowed to give in a year before paying taxes. You provide your accounting for your taxable gifts on Form 709, and you must file this form each year that you give a taxable gift.
Who Must File?
If you give any individual a gift valued over $13,000 in one year, you must file a Form 709 to declare that gift and pay the taxes on the gift. You cannot file a joint gift tax return. If you and your spouse each made gifts valued over $13,000, you both must file a Form 709.
Certain transfers are not considered gifts, and you will not have to file a Form 709 with these non-gift transfers. Donations to a political party or organization are non-gift transfers. Also, if you pay someone else's medical expenses or college tuition, it is a non-gift transfer. You should transfer the money directly to the medical facility or college to ensure that this transfer is not viewed as a gift. Also, gifts to your spouse are not taxable.
When to File
You must file a Form 709 for each year that you make a taxable gift. It is due with your annual income tax return, generally on April 15. If you file for an extension with your income tax return, that extension also applies to Form 709.
Part 1 of Form 709 is for your general information, such as your mailing address and your legal residence. You also must declare your citizenship status in this section. Also, if you and your spouse split any gifts, you must declare your marital status, and that you have your spouse's permission to split the gifts. This is primarily if you and your spouse make a gift of over $26,000 to any one person.
Computation of Taxable Gift Amount
Schedule A of Form 709 is where you calculate the taxable value of the gifts you have given. You also report any valuation discount amounts here, which are considered gifts as well. For example, if you sold your son property valued at $40,000, and he paid you $10,000, the amount discounted from the value of the property of $30,000 is a taxable gift. If you made no other gifts to your son that year, you can exempt $13,000 as your allowable gift amount. If the property was jointly owned, your spouse can exempt an additional $13,000.
If you filed Form 709 for prior periods, you need to complete Schedule B of the form. This is primarily to calculate your unified tax credit, if you have applied any current or previous gifts towards this lifetime exemption from the estate tax.
Part 2 of Form 709 is where you calculate the gift taxes due. You can elect to apply any current gifts made this year toward the unified tax credit here. Figure the taxable amount of the gifts you made using the tables in the instructions for Form 709.
Mail a check or money order payable to the United States Treasury for the amount of gift taxes due. Write the donor's Social Security number on the payment. This is separate from your income tax payable, and you cannot use an overpayment on your income taxes to pay the gift taxes due.