Did you give a gift during the tax year and are you unsure if it is taxable? We get “gift” related tax questions all the time. As it turns out, some gifts are taxable and some are not. Now, let’s dive into what you need to look for when it comes to the giving and reporting of your gifts to the IRS on Tax Form 709.

The Purposes of IRS Tax Form 709

The IRS has published Tax Form 709 in order to help sort the taxable gift issue all out. IRS Tax Form 709 is designated to report gifts that are taxable and it was also created to apply what is known as the taxpayer’s generation-skipping transfer tax emption.

Who Should File Tax Form 709?

As a U.S. tax payer, you must complete Form 709 if you have given gifts that surpass the annual gift tax exclusion as determined by the IRS. Currently, the annual gift giving exclusion is set by the IRS at $15,000. Each year, the annual gift giving exclusion is expected to be adjusted for inflation so this number may increase slightly from tax year to tax year.

There are some gift giving circumstances that are exempt. This includes gifts given to:

  • Educational institutions on behalf of student(s)
  • Pay medical bills directly to a care provider 
  • Political organizations
  • Charitable organizations
  • Spouses who are U.S. citizens

But What is Considered a Gift?

Now, it’s time to get into the specifics of what exactly the IRS considers a gift. Here are two straight forward examples where the IRS would find your gift giving taxable:

  • Providing a no interest loan or loan that is considered below current market value
  • Selling property below fair market value

These two examples give you some insight as to what the IRS is looking out for. However, like all things IRS, taxes and gifts are not always so straightforward, and this is why it is best to speak to a licensed accountant that keeps up with all the annual tax law modifications.

Can You Skip the Tax?

Fortunately, taxpayers have the option of applying the lifetime gift exemption (currently set at 5.6 million dollars) instead of paying a gift tax when your gifts surpass the annual exclusion. As you can imagine, $5.6 million dollars can account for quite a few gifts, but once again there is more to consider when taking this exemption.

The generation-skipping transfer tax along with the federal estate state tax all share the lifetime exemption under the same umbrella known as the Unified Tax Credit.

As it turns out, each and every time you apply the lifetime exemption to gift taxes, the same amount will be taken from what is available to shelter your estate from estate taxes when you pass away.

What if I fail to Report Gift(s) on Tax Form 709?

If you chose to not file Tax Form 709 when you should have, the IRS will hit you with a gift tax penalty of 5 percent each month the tax is due, up to a limit of 25 percent. 

And if file your taxes over 60 days late (even with an extension), you will receive a minimum additional taxation of at $205 or 100 percent of the tax due, whichever is less.

How to File Tax Form 709?

IRS Tax Form 709 cannot be filed online or electronically. The form must be mailed to the IRS directly to:

Internal Revenue Service Center
Attn: E&G – Stop 824G
7940 Kentucky Drive
Florence, KY 41042-2915

Tax Form 709 Sections

  • General Information
  • Tax Computation
  • Computation of Taxable Gifts
  • Gifts Subject Only to Tax Gift
  • Direct Skips
  • Indirect Skips and Other Transfers in Trust
  • Taxable Gift Reconciliation
  • Gifts from Prior Periods
  • Deceased Spousal Unused Exclusion (DSUE) Amount and Restored Exclusion
  • Computation of Generation Skipping Transfer Tax

Download Tax Form 709 and Instructions from the IRS

» Click here to download IRS Tax Form 709

» Click here to download the instructions for IRS Tax Form 709

If you have any questions on these tax forms or gift tax issues, do not hesitate to contact us. We are here to help.