Do You Need to File a Gift Tax Return?

In 2024, you can gift $18,000 to anyone without incurring a gift tax. If you are married, you can double the gift to $36,000 per person. This is called the annual gift tax exclusion. But wait, there’s more. You can gift more than this and still not incur a gift tax.

How Much Can I Gift Without a Gift Tax?

The 2024 gift and estate tax exemption is $13,610,000. If the combined value of your lifetime gifts and your date of death estate is less than this, there will be no estate tax when you die.

The gift and estate tax exemption amount has changed significantly over the years. Click here to see the historic gift and estate tax exemption amounts.

Let’s say you want to gift $1,000,000 to your daughter in 2024. $18,000 would be covered by the annual gift tax exclusion. The remaining $982,000 would be covered by your gift and estate tax exemption. If you died in 2024, your remaining gift and estate tax exemption would be $12,628,000 ($13,610,000 - $982,000). If your estate value is less than $12,628,000, there will be no estate tax - even though you made a big gift to your daughter.

Under the current law, you can make significant gifts without a gift tax. You can use the annual estate tax exclusion of $18,000 per person, plus you can tap into the $13,610,000 gift and estate tax exemption.

How Much Can I Gift Before I Have to File a Gift Tax Return?

Generally, you don’t have to file a gift tax return (IRS Form 709) unless the value of your gift is more than the annual gift tax exclusion. If you gift your son $18,000, or up to $36,000 if you are married, you don’t have to file a gift tax return.

If you need to file a gift tax return, you must file it by April 15 of the year after you make the gift. The IRS will extend the deadline by six months if you request an extension before April 15.

Why Would Someone Not File a Gift Tax Return?

If, upon your death, your estate value will be less than the gift and estate tax exemption, then there will be no penalty for not filing the gift tax return. The IRS does not penalize you for failing to file a gift tax return unless you actually incurred a gift tax, then it will attach late payment fees. But if there is no tax, then there is no penalty.

Why Would Someone File a Gift Tax Return Even if No Tax is Owed?

When you file a gift tax return, like any IRS tax return, the IRS has three years to audit it. After three years, the statute of limitations runs out, and it cannot be audited.

If you gift a hard-to-value asset, such as unique real property, a privately owned business interest, a partnership interest, or artwork, or assets that could rapidly increase in value, such as shares in a start-up, you may want to file the gift tax return to make a record of the date of gift value. If your investment is worth $100,000 at the time of your gift, and three years later, it is worth $1,000,000, you want to establish the date of gift value and start the three-year statute of limitations so the IRS cannot question the value several years later.

Also, when you pass away, your spouse or children may need to file an estate tax return (IRS form 706). The estate tax return requires your accountant to state the value of any gifts you made that were greater in value than the annual gift exclusion. If you had already filed gift tax returns for those gifts, it will make it easier for your accountant to prepare the estate tax return.

Most people probably won’t have to file a gift tax return because the combined value of their gifts and their estate is well below the gift and estate tax exemption. But, if you make gifts of hard-to-value assets or assets you think will rapidly appreciate, talk to your accountant about whether you should file a gift tax return.

Another thing to consider is that the gift and estate tax exemption is subject to change. Although the current amount is well over $13 million and will likely approach $14 million in 2025, unless the tax law is changed, the gift and estate tax exemption is scheduled to drop to around $7 million in 2026. If your estate value is close to this amount or you are married, and you and your spouse’s estate is close to $14 million, you may need to discuss with your accountant and estate planning attorney whether you should make gifts before the law changes.