Form 709 is filed by an individual to report gifts that exceed the annual exclusion:
- Gifts to an individual.
- Gifts to an entity such as a partnership, corporation, or estate or trust.
- A gift to a charitable organization where the donor retained some interest in the property given.
There is no annual exclusion for a gift of a "future interest", i.e., the donee's right to possess and use the property or income from the property doesn't begin until some future date, so these gifts are always reported. (Note that a gift to a QTP, or 529 plan, is considered a gift of a present interest.)
The basic purpose of Form 709 is to track the lifetime exclusion.
- Tax year 2022: the annual limitation is $16,000, and the lifetime exclusion is $12.06 million.
- Tax years 2018-2021 the annual limitation is $15,000. The lifetime exclusion is $11.7 million.
- Tax years prior to 2018: See here for the annual exclusion amounts.
How does the limitation work? When and how is tax calculated?
Gift limitations are ultimately determined by the lifetime exclusion. Thus the total amount of the gift(s) are not taxable until they exceed the lifetime exclusion. For example, an individual may give someone $35,000 and still not be required to pay a tax since the total gifts to the recipient do not exceed the lifetime exclusion. In addition, limitations are by individual, meaning a married couple can each give up to the limitation amounts. In community property states, any gift is considered to be given half by each spouse.
The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, in certain scenarios the person receiving the gift may have to pay the tax. If a donor dies before filing Form 709, the donor's executor must file it.
What is considered a gift?
A gift is the transfer of property or the use of income from property from one individual to another, receiving nothing or less than full value in return. In addition to simple transfers of property such as cash, a variety of situations may be construed as gifts and thus incur the gift tax, such as property being sold at less than full value, a loan being made at zero or reduced interest, or the transfer of insurance benefits.
Form 709 is used to report transfers subject to federal gift tax as well ascertain generation-skipping transfer (GST) taxes and to figure the tax due, if any, on those transfers. The form is also used to allocate the lifetime GST exemption to property transferred during the transferor's lifetime.
The gift tax applies whether or not the donor intends the transfer to be a gift, and the kind of property given may be tangible, intangible, or digital. The gift tax is in addition to any other tax paid or due on the transfer, such as income tax, but the tax is always paid by the giver, not the receiver.
What is not considered a gift?
Transfers between spouses if they are both US citizens are not considered gifts. Additionally, four other types of transfers are not treated as gifts and thus are not subject to gift tax nor included on Form 709:
- Transfers to political organizations;
- Transfers to certain exempt organizations described in section 501(c)(4), (5), and (6);
- Payments of tuition directly to a qualifying educational organization;
- Payments for medical care if made directly to the provider, as well as payments for medical insurance.
Does a business need to file a Form 709?
Only individuals are required to file a gift tax return. If a partnership, corporation, or estate or trust makes a gift, the individual shareholders, partners, or beneficiaries are considered the donors and may be liable for the gift and GST taxes.
Completing Form 709 is done in the Business Program of TaxSlayer Pro. The IRS Form 709 instructions are both invaluable and authoritative. Read the instructions before attempting to complete the form. Form 709 cannot be electronically filed. (This is an IRS limitation.)
To create Form 709 in TaxSlayer Pro, follow these steps:
1. Start the return. From the Quick Menu select:
- 709 - United States Gift Return - Enter the donor's SSN.
- Donor Information - Enter the information about the donor.
- Heading Information - Make any changes as needed.
2. Complete Part 1 - General Information as needed. From the main menu of the return select:
- General Information:
- Donor died during the year - Change to Yes if appropriate.
- Extended time to file - The Form 709 filing deadline can be extended either by filing an individual extension (Form 4868 or 2350) or by filing Form 8892 (available for completion under the Additional Forms/Schedules menu). If either form has been timely filed, click to indicate Yes.
- Total number of donees listed on Schedule A - Enter the number of donees that will be listed on Schedule A.
- Gifts by taxpayer and spouse considered as 1/2 by each - If the taxpayer lives in a community property state, indicate Yes here, then enter the remaining information about the spouse.
- Applied a DSUE amount from a predeceased spouse - The taxpayer can use the deceased spouse's unused exclusion (DSUE) if the executor of the estate made the election on Form 706. If the taxpayer is applying any DSUE on this return or has applied it on a past return, answer Yes. Schedule C will need to be completed, and the first four pages of the Form 706 filed by the estate will need to be attached to the return along with any other DSUE-related paperwork.
3. Complete Schedule A. From the main menu of the return select:
- Total Taxable Gifts
- Enter the amount from Schedule A, Part 4, line 11
- Value of items on Schedule A reflect valuation discount - Answer Yes or No as appropriate.
- Section 529(c)(2)(B) election - Answer Yes or No as appropriate.
- Total value of donor gifts - Enter information about the gifts in all three categories as needed, (a) Gifts subject only to gift tax, (2) Direct skips, and (3) Indirect skips.
- Total annual exclusion for gifts listed on line 3 - See the instructions for what to enter here.
- Total deductions - Complete as needed. See the instructions for assistance.
4. Complete Schedule B as needed. From the main menu of the return select:
- Total Taxable Gifts
- Enter the amount from Schedule B, line 3
- Total Unified credit after 12/31/76 - Select New and enter all the information needed.
5. Complete Schedule C if needed. Schedule C is needed for either of two reasons:
- The donor is a surviving spouse who received a DSUE amount from one or more predeceased spouses. You will have indicated this in the General Information section.
- The donor made a taxable transfer to his or her same-sex spouse that reduced the amount of their available applicable exclusion.
From the main menu of the return select:
- Unified Credit
- Applicable credit amount
- Donor's basic exclusion amount - See the instructions for how to calculate this amount.
- Total DSUE amounts applied - Enter the information about the last deceased spouse and if needed any predeceased spouse.
- Restored exclusion amount - See the instructions for how to calculate this amount.
6. Complete the remainder of Schedule D as needed for the tax computation. From the main menu of the return select:
- Total Tax
- Generation-skipping transfer taxes
- Generation-Skipping Transfers from Schedule A - Select each item listed and indicate the nontaxable portion of the transfer, if any, as well as the GST Exemption Allocated. (Per the instructions the donor can allocate some, all, or none of their available exemption.)
- Generation-Skipping Transfers not from Schedule A - If an entry is needed here, select New and enter the information needed. Be sure to enter the nontaxable portion of the transfer, if any, as well as the GST Exemption Allocated. (Per the instructions the donor can allocate some, all, or none of their available exemption.)
- Exemption Available for future transfers - Complete as needed.
Note that the total of the GST exemption allocated cannot be more than the amount on Schedule D Part 2 Line 3.
7. Enter the credit for foreign gift taxes, if any. From the main menu of the return select:
- Total Credits
- Credit for foreign gift taxes - Enter the amount.
8. Enter any GST taxes prepaid on Form 8892. From the main menu of the return select:
- Gift and generation-skipping taxes prepaid - Enter the amount.
TaxSlayer Pro will calculate the gift tax if the annual limitation has been exceeded but will also calculate the credit based on the lifetime exclusion.
Note: This is a brief guide on preparing Form 709 in TaxSlayer Pro. It is not intended as tax advice.