When Is a Gift Tax Return Required and What You Need to Know

If you've made a gift to someone, you might wonder if you need to file a gift tax return. The good news is that most gifts are tax-free, but there are some exceptions. You're required to file a gift tax return if the gift exceeds the annual exclusion amount.

The annual exclusion amount is $16,000 for 2022, and it's indexed for inflation. This means that if you give more than $16,000 to a single person in a year, you'll need to file a gift tax return. The IRS considers gifts made in a calendar year, so it's not a rolling 12-month period.

You'll also need to file a gift tax return if you give gifts that exceed the total exclusion amount over your lifetime. This amount is $12.06 million for 2022, and it's also indexed for inflation. If you're unsure about whether you need to file a gift tax return, it's always a good idea to consult with a tax professional or the IRS directly.

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If you've made a taxable gift, you're required to file a gift tax return, which is due April 15 of the following year. This is the case even if you don't owe a gift tax because you haven't reached the $13.61 million lifetime exemption.

The IRS uses Form 709, also known as the U.S. Gift (and Generation-Skipping Transfer) Tax Return, to keep track of your lifetime exemption. You'll need to file this form if you've made a gift that exceeds the $18,000 annual gift tax exclusion level.

In some cases, you may not need to file a gift tax return, like if you give gifts that qualify for the annual exclusion. For example, if you give your son $18,000 and your daughter-in-law $1,000 to help with the down payment on a house, you wouldn't need to file a return.

If you do need to file a gift tax return, you'll need to report the gift and how much of your lifetime exemption you used. For example, if you give your son $19,000 to help him afford the down payment on his first house, you'd report that you used $1,000 of your $13.61 million lifetime exemption.

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Here's a quick rundown of who files the gift tax return and how to report:

Married couples can also "split" the gift, allowing one spouse to use part of the other spouse's lifetime exemption. This can be a useful strategy to avoid triggering the gift tax, but it does require both spouses to agree to the gift splitting arrangement.

You don't have to pay a gift tax on most gifts, but there are some limits to be aware of. You can give up to $17,000 in 2023 or $18,000 in 2024 to any number of people without facing any gift taxes.

This amount is known as the annual exclusion amount, and it's a great way to give gifts without incurring any taxes. You can give multiple people this amount every year.

If you give more than the annual exclusion amount, you'll start to use up your lifetime tax-free limit of $13.61 million in 2024. This means that if you give $20,000 to ten people in 2024, you'll use up $200,000 of your lifetime limit.

Recipients of gifts generally don't have to pay income tax on the gifts they receive.

In some cases, gifts are exempt from taxation even if they exceed the annual exclusion amount. Gifts of present interests within the annual exclusion amount are nontaxable, and in 2022, that's $16,000 per donee.

Direct payments of qualifying medical or educational expenses on behalf of an individual are also nontaxable. This can be a huge relief for families with dependents.

Gifts to one's U.S.-citizen spouse are exempt, and can be made either outright or to a trust that meets certain requirements. The same goes for gifts to one's noncitizen spouse, but with a special annual exclusion amount of $164,000 in 2022.

Here are some specific scenarios where gifts are exempt from taxation:

If all your gifts for the year fall into certain categories, no gift tax return is required.

Gifts of present interests within the annual exclusion amount are considered nontaxable. In 2022, this amount is $16,000 per donee.

Direct payments of qualifying medical or educational expenses on behalf of an individual are also nontaxable.

Gifts to political organizations and certain tax exempt organizations are exempt from gift tax.

Here are some specific types of gifts that are considered nontaxable:

Gifts to one’s U.S.-citizen spouse are also nontaxable, either outright or to a trust that meets certain requirements.

Gifts to one’s noncitizen spouse within a special annual exclusion amount are nontaxable, with an amount of $164,000 in 2022.

Giving gifts to minors can be a bit tricky, but don't worry, I've got the lowdown. If you give an amount up to $18,000 to each child each year, it doesn't count toward the lifetime gift tax exemption.

What counts as a gift to a minor? It's any gift made outright to the minor, or one made through a custodial account like a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account.

One thing to keep in mind is that custodial accounts have a catch: the minor must receive the funds at maturity, which is usually age 18 or 21, regardless of your wishes.

A parent's support payments for a minor aren't considered gifts if they're required by law. But if the payments aren't legally required, they can be considered a gift, and you'll need to keep track of them to avoid exceeding the $18,000 annual limit.

The value of your estate is the total value of all of your assets at the time you die, and the rules for 2024 tax estates over $13.61 million at rates as high as 40%.

You can move a lot of money out of your estate using the annual gift tax exclusion.

The first $13.61 million of your estate does not get taxed, thanks to an exclusion that offsets the bill.

The government is aware of the idea to give all of your property to your heirs before you die to avoid estate tax, but there's a catch.

You begin to eat into the exclusion that offsets the bill on the first $13.61 million of lifetime gifts in 2024 if you go beyond the annual gift tax exclusion.

Go beyond the $13.61 million and you'll have to pay the gift tax—at rates that mirror the individual income tax, up to 40% in 2024.