Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

January 26, 2013
When do I have to file a gift tax return?

Q: My understanding is that a gift to someone that is to be jointly shared with a spouse, even if it is less than the exclusion amount for the gift, must be reported on a gift tax return (Form 709) to the IRS. Is that true? In order to avoid estate settlement problems later, should gift tax returns be submitted for prior years in which gifts were given but no gift tax returns were submitted? Would there be penalties, fees, etc. for late returns (assuming that the life time exemption is not exceeded)? Is there an amnesty or forgiveness program for those who fess up to their ignorance of the law?
Robert
Sacramento, CA

A: There are a number of aspects to your question. Let's look at them one at a time.

The first part of your question concerns the concept of "gift splitting" between spouses. Whether you will benefit from gift splitting depends on whether your gift was made from separate property or community property. If your gift was made from separate property, and it exceeded the annual exclusion amount ($13,000 for 2012, $14,000 for 2013), then electing to split the gift with your spouse would allow you to use her annual exclusion amount, also. You must file a gift tax return to make this election.

If the gift was made from community property, then each spouse is treated as having given 50% of the gift. Gift splitting is not necessary in this case.

Now, let's see if you have to file a gift tax return. If you made a gift in excess of the annual exclusion amount, or you want to elect "gift splitting," then you need to file a gift tax return, IRS Form 709, to report the gift. If your gift is less than the annual exclusion amount, you do not have to file a gift tax return.

For example, if you made a gift of $15,000 to a donee in 2012, then you would have to report a $2,000 taxable gift ($15,000 less the $13,000 annual exclusion amount). That doesn't mean that you will owe any gift tax because there is an applicable exemption amount, a credit against gift and estate tax, equating to $5,120,000 in value for 2012 ($5,250,000 for 2013, indexed for inflation thereafter) that would offset the tax on the $2,000 taxable gift, assuming no previous taxable gifts. You would not actually owe any gift tax until your taxable gifts exceeded the "applicable exemption amount."

The annual exclusion applies "per donee, per year." If you made three $13,000 gifts to three different people in 2012, then you reduce each of the gifts by $13,000 in calculating whether you made a taxable gift. You would not have made a taxable gift in this example and you would not have to file a gift tax return.

To further clarify, if you made two $8,000 gifts in 2012 to the same person, then you would have to report a $3,000 taxable gift ($8,000 plus $8,000 less the $13,000 per person, per year exclusion amount).

Gift tax returns are due April 15th of the year following the year of the gift, the same due date as for filing income tax returns. You can request a 6 month extension of time to file your gift tax return using either the same extension form as for income tax purposes (IRS Form 4868) or an extension request specifically for gift tax returns (IRS Form 8892). You must pay any gift tax due with the extension request as it is an extension of time to file, not an extension of time to pay.

Each spouse has to file their own gift tax return, if one is required. There is no provision for filing "jointly." The gift tax is a transfer tax that applies to each person individually.

It is important to file gift tax returns if you made gifts in excess of the annual exclusion amount. You need to keep track of how much of your "applicable exemption amount" you have left. The "applicable exemption amount" is a credit against both gift and estate tax, as mentioned above.

There is no penalty for filing a gift tax return late, unless tax is due with the return. If tax is due with the return, the penalty is 5% for each month or portion of a month that the return is late, up to 25%. There is also a late payment penalty of .5% per month, or portion of a month. The .5% is included in the 5% for the first five months, in essence. In addition to the penalties, interest is due on late paid tax.

I am not aware of any amnesty programs for late filing and paying of gift taxes. There is a "reasonable cause" relief provision for the penalties. Unfortunately, ignorance of the filing and paying requirements is not considered reasonable cause.

About Comments

Reader comments on Sacbee.com are the opinions of the writer, not The Sacramento Bee. If you see an objectionable comment, click the "report abuse" button below it. We will delete comments containing inappropriate links, obscenities, hate speech, and personal attacks. Flagrant or repeat violators will be banned. See more about comments here.

What You Should Know About Comments on Sacbee.com

Sacbee.com is happy to provide a forum for reader interaction, discussion, feedback and reaction to our stories. However, we reserve the right to delete inappropriate comments or ban users who can't play nice. (See our full terms of service here.)

Here are some rules of the road:

• Keep your comments civil. Don't insult one another or the subjects of our articles. If you think a comment violates our guidelines click the "report abuse" button to notify the moderators. Responding to the comment will only encourage bad behavior.

• Don't use profanities, vulgarities or hate speech. This is a general interest news site. Sometimes, there are children present. Don't say anything in a way you wouldn't want your own child to hear.

• Do not attack other users; focus your comments on issues, not individuals.

• Stay on topic. Only post comments relevant to the article at hand. If you want to discuss an issue with a specific user, click on his profile name and send him a direct message.

• Do not copy and paste outside material into the comment box.

• Don't repeat the same comment over and over. We heard you the first time.

• Do not use the commenting system for advertising. That's spam and it isn't allowed.

• Don't use all capital letters. That's akin to yelling and not appreciated by the audience.

You should also know that The Sacramento Bee does not screen comments before they are posted. You are more likely to see inappropriate comments before our staff does, so we ask that you click the "report abuse" button to submit those comments for moderator review. You also may notify us via email at feedback@sacbee.com. Note the headline on which the comment is made and tell us the profile name of the user who made the comment. Remember, comment moderation is subjective. You may find some material objectionable that we won't and vice versa.

If you submit a comment, the user name of your account will appear along with it. Users cannot remove their own comments once they have submitted them, but you may ask our staff to retract one of your comments by sending an email to feedback@sacbee.com. Again, make sure you note the headline on which the comment is made and tell us your profile name.

hide comments

On October 14, The Sacramento Bee will temporarily remove commenting from sacbee.com. While we design the upgrade, we encourage you to tell us what you like and don't like about commenting on sacbee.com and other websites. We've heard from hundreds of you already and we're listening. Please continue to add your thoughts and questions here. We also encourage you to write Letters to the Editor on this and other topics.



FOLLOW US | Get more from sacbee.com | Follow us on Twitter | Become a fan on Facebook | Get news in your inbox | View our mobile versions | e-edition: Print edition online | What our bloggers are saying

Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



October 2013

Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31