Who In Their Right Mind Files Gift Tax Returns? And Why?

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Small Law Survivor
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Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Small Law Survivor »

A few years ago we gifted our daughter around $38,000. I filed a gift tax return. My tax preparer prepared it, and I had to mail it in - no online filing. My tax preparer told me that there was some humongous number of these things sitting around waiting to be processed.

This year (2023) we gifted out daughter $32,000. But, we also took her on an expensive vacation. And gave her various in-kind gifts. We certainly are over $32,000.

I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.

What if she gets married and we pay for the wedding? Do we have to file a gift return?

I feel like a fool for bothering to file that gift return, and I see no reason to file one this year.

What am I missing?

Small Law Survivor
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livesoft
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by livesoft »

The IRS publishes statistics on Gift Tax Returns:
https://www.irs.gov/statistics/soi-tax- ... statistics

and a convenient highlight: https://www.irs.gov/pub/irs-soi/11esgiftsnap.pdf
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mhalley
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by mhalley »

I agree there is no need for a gift tax return. The individual gift limit for 2024 is 18 k. So 36k for a couple. Paying the wedding vendors directly would not incur gift tax either.
fourwheelcycle
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by fourwheelcycle »

If you are confident your total estate, including the net excess value above the IRS' annual exemption for annual gifts not reported over your lifetime, will never grow to within 10% (or so?) of any future Federal lifetime estate tax exemption, you could probably safely defer filing 709s for the years you gift more than the IRS' annual exemption.

However, if you are not confident of this, there is a chance your executor, who will have to submit Form 706 after you die if your estate, including unreported excess annual gift amounts, is within 10% (or so) of the then applicable lifetime exemption, will have to commit fraud. The form asks for a full reporting of all past excess gift amounts. It asks for a report of all past 709 forms, and I believe it offers the opportunity to file previously unsubmitted 709 amounts w/o penalty, except, of course, that the total of timely and late-reported net 709 amounts will be added to the value of your final estate. If your executor answers the question with "Nope, none", that would be fraud.

Of course, I have no idea how or if the IRS would detect this type of fraudulent non-reporting going back twenty years or more. Unless, of course, someone tips them off and they choose to do an in-depth look at you past records. So, you make your choice and you take your chances.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by CloseEnough »

I thought it was required if you exceed the threshold. If I am right about that, then that should be enough reason to file it. It is easy to prepare and file. And, isn't there a penalty if you were required to file it and didn't?
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by exodusNH »

Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.
Or, more likely, most people don't have the excess money to give away more than the limits. The median 55+ year old has about $70,000 in retirement funds. A couple could give a child and their spouse $76,000 in 2024 without filing a 709.

It always makes sense to comply with tax law.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by cchrissyy »

many people view paying for a wedding or a vacation as something you are doing for yourself not truly a gift to the other person.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by humblecoder »

Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm A few years ago we gifted our daughter around $38,000. I filed a gift tax return. My tax preparer prepared it, and I had to mail it in - no online filing. My tax preparer told me that there was some humongous number of these things sitting around waiting to be processed.

This year (2023) we gifted out daughter $32,000. But, we also took her on an expensive vacation. And gave her various in-kind gifts. We certainly are over $32,000.

I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.

What if she gets married and we pay for the wedding? Do we have to file a gift return?

I feel like a fool for bothering to file that gift return, and I see no reason to file one this year.

What am I missing?

Small Law Survivor
My mom always told me growing up, "Just because all your friends are jumping off the Brooklyn Bridge doesn't mean you have to." Meaning, just because some people might not bother filing Form 709 when they are legally required to, doesn't mean you should follow suit.

The IRS defines gifts as "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." If your gifts exceeded the exclusion limit, then you need to file.

Regarding paying for a wedding, I have seen mixed things on this topic. Some people say, "yes, it is a gift". Others say "no, because the parents are the one's throwing the party". People in the latter camp say that if the parents pay the vendors directly, then this isn't a gift. But I am not an accountant or tax professional, so you might want to consult with an actual professional if you are worried about this gray area.

If you are in the former camp that, yes, this is a gift, then be aware that the gift would be to both the bride and groom, which should effectively double the amount of your exclusion (I say "should" because I am not an accountant or tax professional).
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by humblecoder »

fourwheelcycle wrote: Fri Feb 09, 2024 4:24 pm If you are confident your total estate, including the net excess value above the IRS' annual exemption for annual gifts not reported over your lifetime, will never grow to within 10% (or so?) of any future Federal lifetime estate tax exemption, you could probably safely defer filing 709s for the years you gift more than the IRS' annual exemption.

...
Not sure how anyone could feel confident, given that it has changed several times in my lifetime and will likely change several times more.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by SuzBanyan »

If you expect that a surviving spouse might have to file a portability estate tax return, i believe it will ask for all the prior reportable gifts. By filing gift tax returns when required, the surviving spouse will not need to peer back into history to try to reconstruct the amounts gifted.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm A few years ago we gifted our daughter around $38,000. I filed a gift tax return. My tax preparer prepared it, and I had to mail it in - no online filing. My tax preparer told me that there was some humongous number of these things sitting around waiting to be processed.

This year (2023) we gifted out daughter $32,000. But, we also took her on an expensive vacation. And gave her various in-kind gifts. We certainly are over $32,000.

I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.

What if she gets married and we pay for the wedding? Do we have to file a gift return?

I feel like a fool for bothering to file that gift return, and I see no reason to file one this year.

What am I missing?

Small Law Survivor
A few years ago = when exactly?

Did the value of all your gifts in 2023 to your daughter, including all the in-kind gifts, certainly exceed $34K?

Do you live in a community property state like California? If so, were all the gifts to your daughter from community property or separate property or a mix?

The annual gift exclusion amount changes. For example (from https://www.irs.gov/businesses/small-bu ... 0678768612):

2011-2012: $13K
2013-2017: $14K
2018-2021: $15K
2022: $16K
2023: $17K
2024: $18K

In 2023, because the annual exclusion limit was $17K, and you are married, as a couple, you and your spouse can gift up to $34K [= 2 x $17K] to your daughter (or anyone else) wthout needing to file a gift tax return.

However, if you do not live in a community property state -- which automatically treats gifts from community property as a 50% gift by each spouse -- and you and your spouse did not each give 50% of the total gifts to your daughter, then, technically, at least one of you needs to file a gift tax return where the other spouse agrees to split all gifts for 2023 even if the total was less than $34K.

If you still have your gift tax return(s) from that old $38K gift to your daughter, did each of you and your spouse file a gift tax return or did only one of you file a gift tax return with the other spouse agreeing to split the gifts on that return?
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by LadyGeek »

Discussions of dishonest behavior or bypassing the law is totally unacceptable. The OP does not wish to file a required return. This thread has run its course and is locked.

Update: See below.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by LadyGeek »

By member request and further review, there is not enough information to determine if a gift tax return should have been filed in 2023.

This thread is unlocked to continue the discussion.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by toddthebod »

CloseEnough wrote: Fri Feb 09, 2024 4:30 pm I thought it was required if you exceed the threshold. If I am right about that, then that should be enough reason to file it. It is easy to prepare and file. And, isn't there a penalty if you were required to file it and didn't?
The penalty is a percentage of the gift tax owed with the return. I'll let you infer the rest.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by LilyFleur »

I had not ever considered a family vacation to be a gift to a child. Does anyone know what the IRS has to say about that?
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by GP813 »

I don't understand how taking your adult children on vacation is considered a gift, anymore than paying for fine dining for your entire family is.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

LilyFleur wrote: Fri Feb 09, 2024 8:01 pm I had not ever considered a family vacation to be a gift to a child. Does anyone know what the IRS has to say about that?
Quoting from "What is considered a gift?" (https://www.irs.gov/businesses/small-bu ... 0678768615):

"Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return."

It does not matter whether that individual is your child or a stranger -- there's no general family exception (gifts between spouses are special and generally unlimited if both are US citizens). In fact, trying to prevent intra-family transfers across generations (aka parent-to-child) for wealthy people is the primary motivation for the entire estate tax section of the law in the first place.

However, unless the gift exceeds the annual exclusion -- in 2024, $18K (from an individual) / $36K (from a couple) per person -- it does not need to be reported, generally (just watch out for gift splitting issues if you're a couple giving between $18K - $36K and not gifting community property in a community property state). Keep in mind there are also some exceptions to this annual limit: medical or tuition / educational expenses paid directly to the institution.

Of course, practically, the IRS also has to focus its limited resources, so it's not likely for the IRS to be proactively auditing everyone's family vacations as a primary offense for estate and gift tax reporting violations. But it could come up as a secondary issue if an audit is already taking place, especially if you're wealthy enough to be subject to estate tax.
Last edited by rambogleas on Fri Feb 09, 2024 9:36 pm, edited 1 time in total.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

GP813 wrote: Fri Feb 09, 2024 8:05 pm I don't understand how taking your adult children on vacation is considered a gift, anymore than paying for fine dining for your entire family is.
If you replace "adult children" with "friends" or "strangers," does your understanding change?

If you did not pay for their vacation or their dinner, who would have needed to pay for them to go on that vacation or eat that dinner?

If someone does not pay for something of non-zero value, it's generally going to be a gift from the payer / giver to the recipient.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by mattsm »

It's my money's worth to have my children be present on a vacation. So I am paying for them to come for MY enjoyment and it's worth my money.

Easily justified as a family member, less so with a stranger...
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

humblecoder wrote: Fri Feb 09, 2024 5:15 pm If you are in the former camp that, yes, this is a gift, then be aware that the gift would be to both the bride and groom, which should effectively double the amount of your exclusion (I say "should" because I am not an accountant or tax professional).
If you're a couple, paying for the wedding of two people, it quadruples the exclusion: 2 donors x 2 donees x [annual exclusion amount]. In 2024, with an $18K limit per person, that is $72K total. Pretty solid wedding budget.

Again, I think there's still quite a bit of confusion about simply having to report a gift vs. actually paying tax on said gift.

Just because you have to report a gift on a gift tax return does not mean you actually pay any gift tax on those gifts.

In 2023, the lifetime exemption was $12.92M per person ($25.84M per couple); in 2024, it's currently $13.61M per person ($27.22M per couple). Even in 2026, after the TJCA is scheduled to expire and the limits revert to pre-2018 levels adjusted for inflation, it will still likely be $6M+ per person ($12M+ per couple). Furthermore, keep in mind you actually have both a lifetime gift tax exemption and a lifetime GST tax exemption of the same size (GST = for gifts to grandchildren and below aka that "skip" at least one generation).

Yes, you might have to pay the costs to prepare and file the gift tax return, which is annoying, but you won't actually have to pay any gift taxes unless you've already exceeded your lifetime exemption.

I would encourage you to look at IRS Form 709. It's actually not that difficult to prepare it yourself with a little patience, especially working from a sample for just regular taxable gifts. For example, check out Barack and Michelle Obama's gift tax returns when they took advantage of the upfront 5-years worth of contributions to their daughters' 529 plans.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

toddthebod wrote: Fri Feb 09, 2024 7:53 pm The penalty is a percentage of the gift tax owed with the return. I'll let you infer the rest.
Most people are not going to owe gift tax on their gift tax return. From the IRS statistics highlight for 2021 (https://www.irs.gov/pub/irs-pdf/p5368.pdf), 99.3% of gift tax returns had no tax liability almost certainly because most people filing gift tax returns have not exceeded their lifetime exemptions.
Last edited by rambogleas on Fri Feb 09, 2024 10:34 pm, edited 1 time in total.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by toddthebod »

rambogleas wrote: Fri Feb 09, 2024 10:26 pm
toddthebod wrote: Fri Feb 09, 2024 7:53 pm The penalty is a percentage of the gift tax owed with the return. I'll let you infer the rest.
Most people are not going to owe gift tax on their gift tax return. From the IRS statistics referenced previously for 2011, 95% of gift tax returns had no tax liability on those gift tax returns because most people filing gift tax returns have not exceeded their lifetime exemptions.
So have you inferred the rest?
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

mattsm wrote: Fri Feb 09, 2024 9:52 pm It's my money's worth to have my children be present on a vacation. So I am paying for them to come for MY enjoyment and it's worth my money.

Easily justified as a family member, less so with a stranger...
Donors give for many reasons. Your enjoyment is a worthwhile and valid reason, but the definition of whether a transfer is a gift is not based on the donor's rationale for giving.

Quoting from the IRS stats of 2021 gifts (https://www.irs.gov/pub/irs-pdf/p5368.pdf): "Donors gave to 800,505 donees. Of these, almost 81.2 percent were relatives of the donor, including 52.4 percent who were their children."
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by 02nz »

exodusNH wrote: Fri Feb 09, 2024 4:34 pm It always makes sense to comply with tax law.
+1. Seems a little strange to have to say this to OP, who appears to be a lawyer, but OK ...
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by GreendaleCC »

Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.
The link someone posted above about the IRS stats had this:
Donors filed 250,949 Form 709 returns in 2021,
amounting to nearly $182.6 billion in gifts.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by gips »

rambogleas wrote: Fri Feb 09, 2024 10:03 pm
humblecoder wrote: Fri Feb 09, 2024 5:15 pm If you are in the former camp that, yes, this is a gift, then be aware that the gift would be to both the bride and groom, which should effectively double the amount of your exclusion (I say "should" because I am not an accountant or tax professional).
If you're a couple, paying for the wedding of two people, it quadruples the exclusion: 2 donors x 2 donees x [annual exclusion amount]. In 2024, with an $18K limit per person, that is $72K total. Pretty solid wedding budget.

Again, I think there's still quite a bit of confusion about simply having to report a gift vs. actually paying tax on said gift.

Just because you have to report a gift on a gift tax return does not mean you actually pay any gift tax on those gifts.

In 2023, the lifetime exemption was $12.92M per person ($25.84M per couple); in 2024, it's currently $13.61M per person ($27.22M per couple). Even in 2026, after the TJCA is scheduled to expire and the limits revert to pre-2018 levels adjusted for inflation, it will still likely be $6M+ per person ($12M+ per couple). Furthermore, keep in mind you actually have both a lifetime gift tax exemption and a lifetime GST tax exemption of the same size (GST = for gifts to grandchildren and below aka that "skip" at least one generation).

Yes, you might have to pay the costs to prepare and file the gift tax return, which is annoying, but you won't actually have to pay any gift taxes unless you've already exceeded your lifetime exemption.

I would encourage you to look at IRS Form 709. It's actually not that difficult to prepare it yourself with a little patience, especially working from a sample for just regular taxable gifts. For example, check out Barack and Michelle Obama's gift tax returns when they took advantage of the upfront 5-years worth of contributions to their daughters' 529 plans.
Is the wedding couple the receiver of the gift or the wedding couple and all the attendees?
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Small Savanna »

We paid for a wedding in 2023, but the total was less than $17K x 4. Also, since the biggest expense was food and booze for all the guests, that was arguably a gift to each of the guests, not just to the bride and groom. You could make the same argument for the music and possibly even the photographer - we all heard the music, and we all looked at the photos, so those weren't only for the benefit of the bride and groom.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by JazzTime »

Perhaps there is some specific IRS ruling on the subject, but there seems to be a failure to distinguish between transferring property to an individual and enjoying the company of an individual.

If you throw a party (e.g. a wedding) and invite 100 people, you have not made a gift to 100 people or to the two people who they are honoring by their attendance. You invited them to share their company. That would be my position (absent some specific IRS ruling to the contrary) and I suspect virtually no parents have filed gift tax returns in the year their child was married. It's the same if you invite friends to your home for dinner or to your local restaurant or to your private island or to cruise on your yacht.

It is a far different situation if you give an individual $20K so they can purchase a luxury cruise ticket and travel without you. That's a gift.

All that said, I suspect the IRS has far better things to do than hunt down parents who paid for weddings. It would not be a good look.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by sailaway »

JazzTime wrote: Sat Feb 10, 2024 9:08 am Perhaps there is some specific IRS ruling on the subject, but there seems to be a failure to distinguish between transferring property to an individual and enjoying the company of an individual.

If you throw a party (e.g. a wedding) and invite 100 people, you have not made a gift to 100 people or to the two people who they are honoring by their attendance. You invited them to share their company. That would be my position (absent some specific IRS ruling to the contrary) and I suspect virtually no parents have filed gift tax returns in the year their child was married. It's the same if you invite friends to your home for dinner or to your local restaurant or to your private island or to cruise on your yacht.

It is a far different situation if you give an individual $20K so they can purchase a luxury cruise ticket and travel without you. That's a gift.

All that said, I suspect the IRS has far better things to do than hunt down parents who paid for weddings. It would not be a good look.
As I recall, paying for someone's vacation, even with you, does explicitly count as a gift.

I suspect gift tax issues are usually found as a result of a full audit. If you are ignoring IRS guidelines here, where else are you using the same logic?
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

gips wrote: Sat Feb 10, 2024 12:55 am Is the wedding couple the receiver of the gift or the wedding couple and all the attendees?
On one hand, if you were to actually itemize all the wedding expenses, it does seem very reasonable that at least the bigger wedding expenses could have a per-attendee amortization / gift allocation like the venue, food, drink, flowers / decorations, music, etc. If so, this would allow for a much bigger wedding budget without having to worry about filing a gift tax return (assuming no gift-splitting issues for a donor couple): [number of donors] x [number of attendees] x [annual exclusion limit].

Of course, some likely wedding costs (e.g., bride's dress, groom's tux, wedding jewelry, etc.) are clearly received by just the wedding couple, not all attendees.

On the other hand, with a large wedding budget, paying to file gift tax returns just to be conservative would likely be a very marginal added cost if you did not self-prepare and file.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by rambogleas »

Regarding indirect gifts, especially to adult children, this article might be helpful:

https://www.thetaxadviser.com/issues/20 ... -2021.html
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Steven28 »

One can easily overthink this topic. My wife and I paid for my daughter's wedding. My wife and I were the hosts of the party. No different that if we were the host of a dinner party in my house or at a restaurant. It is not a gift from a tax view (in my opinion and I am not a lawyer nor accountant) and it would never occur to me to consider filing a gift tax return. Now some families might morally view that paying for the wedding is a gift to their child and that is ok, and maybe they tell their child it is a gift since they did not have to pay for the wedding. But in reality I don't see it is as gift for the purposes of filing a gift tax return. And if the IRS has a different view, they can tell me down the road.

But did give each of my kids a chunk of money to help with a downpayment on a house. And for that I did file a gift tax return.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by LadyGeek »

The IRS definition is here: Gift tax | Internal Revenue Service
The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.

The gift tax applies to the transfer by gift of any type of property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Lee_WSP »

Weddings, dinners, and vacations are most certainly gifts. But unless it's in the hundreds of thousands to an individual, no one ever bothers.

Not filing a 709 when no tax is owed is the same as not filing a 1040 if no tax is owed. It may cause problems down the line, but probably not.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by TomatoTomahto »

Lee_WSP wrote: Sat Feb 10, 2024 1:18 pm Not filing a 709 when no tax is owed is the same as not filing a 1040 if no tax is owed. It may cause problems down the line, but probably not.
Our lawyer insists on us filing a 709 every year, even though we are at the legal non-filing limit. When I ask why, she explains that “humma humma portability one account split” and my eyes roll in my head (in fairness to her, I have a form of dyslexia when it comes to legal discussions). So, we do it. It might be because one of the gifts goes into a Crummey Trust where one of us is the grantor and the check is written from one account but we use both exclusions. We are in Massachusetts, with a comically low lifetime exclusion (recently raised from $1M to $2M), so it’s important for us to stay legal.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Halicar »

Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
toddthebod
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by toddthebod »

Halicar wrote: Sat Feb 10, 2024 1:42 pm Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
Did your neighbor also give you $17,000 in cash?
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Lee_WSP »

TomatoTomahto wrote: Sat Feb 10, 2024 1:34 pm
Lee_WSP wrote: Sat Feb 10, 2024 1:18 pm Not filing a 709 when no tax is owed is the same as not filing a 1040 if no tax is owed. It may cause problems down the line, but probably not.
Our lawyer insists on us filing a 709 every year, even though we are at the legal non-filing limit. When I ask why, she explains that “humma humma portability one account split” and my eyes roll in my head (in fairness to her, I have a form of dyslexia when it comes to legal discussions). So, we do it. It might be because one of the gifts goes into a Crummey Trust where one of us is the grantor and the check is written from one account but we use both exclusions. We are in Massachusetts, with a comically low lifetime exclusion (recently raised from $1M to $2M), so it’s important for us to stay legal.
Your state is on the other side of probably not. State investigators are loose canons. Unpredictable and can be bulldogs.

Your estate may also be on the other side of probably not. Filing the 709 starts the clock on when the service can challenge the filing.

Its hard to predict what the lifetime exemption will be, but given it's extreme unpopularity, I can't see it returning to under 2-5 million. Ask me again in thirty years (a generation and a decade).
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Halicar
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

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toddthebod wrote: Sat Feb 10, 2024 1:47 pm
Halicar wrote: Sat Feb 10, 2024 1:42 pm Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
Did your neighbor also give you $17,000 in cash?
No, but it seems that the law does not apply solely to cash gifts above $17,000. I was being a bit of a smart alec, but it is troubling when the law is essentially impossible to follow.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by TomatoTomahto »

Lee_WSP wrote: Sat Feb 10, 2024 1:57 pm Your state is on the other side of probably not. State investigators are loose canons. Unpredictable and can be bulldogs.
We had one state audit (NY rather than MA), but I have no desire for another one. Although we actually came out ahead tax wise, we did have to pay our CPA for his time. It also took up my wife’s time getting security card swipe records, EZ Pass records, credit card receipts, etc., all for essentially nothing. Easy for the auditors to ask for more evidence; PITA for us to provide it.

I can only hope that our staying within the lines was noted and they will leave us alone in the future.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

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TomatoTomahto wrote: Sat Feb 10, 2024 1:34 pmWe are in Massachusetts, with a comically low lifetime exclusion (recently raised from $1M to $2M), so it’s important for us to stay legal.
Reason #82 to not live in Massachusetts.

At least in my book. :D
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by toddthebod »

Halicar wrote: Sat Feb 10, 2024 2:01 pm
toddthebod wrote: Sat Feb 10, 2024 1:47 pm
Halicar wrote: Sat Feb 10, 2024 1:42 pm Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
Did your neighbor also give you $17,000 in cash?
No, but it seems that the law does not apply solely to cash gifts above $17,000. I was being a bit of a smart alec, but it is troubling when the law is essentially impossible to follow.
If they didn't give you $17,000 in other gifts, the free barbecue is under the annual exclusion and is therefore not reportable.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by TomatoTomahto »

Stinky wrote: Sat Feb 10, 2024 2:13 pm
TomatoTomahto wrote: Sat Feb 10, 2024 1:34 pmWe are in Massachusetts, with a comically low lifetime exclusion (recently raised from $1M to $2M), so it’s important for us to stay legal.
Reason #82 to not live in Massachusetts.

At least in my book. :D
Well, we were in NJ, so it’s an upgrade for us :D

We are grateful to be here and have not found another place we’d rather be; if we find one, we will go there. The best part of estate taxes is that I won’t care any longer when they come due.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Lee_WSP »

Halicar wrote: Sat Feb 10, 2024 2:01 pm
toddthebod wrote: Sat Feb 10, 2024 1:47 pm
Halicar wrote: Sat Feb 10, 2024 1:42 pm Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
Did your neighbor also give you $17,000 in cash?
No, but it seems that the law does not apply solely to cash gifts above $17,000. I was being a bit of a smart alec, but it is troubling when the law is essentially impossible to follow.
The giftee neither pays the tax nor files the return. It is solely the responsibility of the gifter.

The annual exemption may feel low, but its per person, which allows quite a lot of largesse.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

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One should file the return when the law requires.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by bsteiner »

exodusNH wrote: Fri Feb 09, 2024 4:34 pm
Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.
Or, more likely, most people don't have the excess money to give away more than the limits. The median 55+ year old has about $70,000 in retirement funds. A couple could give a child and their spouse $76,000 in 2024 without filing a 709.

It always makes sense to comply with tax law.
Wealth is more unevenly distributed than income, so most people don't make taxable gifts (gifts in excess of the annual exclusion).

Nevertheless, I do a bunch of gift tax returns every year, and I review a bunch of gift tax returns that clients have their accountants do.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Lee_WSP »

faanger101 wrote: Sat Feb 10, 2024 2:28 pm
humblecoder wrote: Fri Feb 09, 2024 5:15 pm
Small Law Survivor wrote: Fri Feb 09, 2024 3:58 pm A few years ago we gifted our daughter around $38,000. I filed a gift tax return. My tax preparer prepared it, and I had to mail it in - no online filing. My tax preparer told me that there was some humongous number of these things sitting around waiting to be processed.

This year (2023) we gifted out daughter $32,000. But, we also took her on an expensive vacation. And gave her various in-kind gifts. We certainly are over $32,000.

I'm wondering whether it makes any sense to file a gift tax return for 2023. I can't imagine that many people do this. Apparently, around $250,000 of these are filed annually. That small number suggests to me that most people don't bother.

What if she gets married and we pay for the wedding? Do we have to file a gift return?

I feel like a fool for bothering to file that gift return, and I see no reason to file one this year.

What am I missing?

Small Law Survivor
The IRS defines gifts as "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." If your gifts exceeded the exclusion limit, then you need to file.
Interesting language. So in case of a large medical bill I know a huge chunk goes to cover services for homeless and illegals. So how to file such gift :confused
Medical and educational gifts paid directly to providers are excluded from the gift tax.
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by JazzTime »

LadyGeek wrote: Sat Feb 10, 2024 12:20 pm The IRS definition is here: Gift tax | Internal Revenue Service
The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.

The gift tax applies to the transfer by gift of any type of property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.
If I invite a couple to my home or to my luxury vacation home or to my yacht or to my private island to share time with me, I have not transferred any property. The gift, if any, is to my wife and I who wish to enjoy the company of that couple. In my view, that is a different situation than if I rent a beach cottage and let them use it by themselves for a month. In that case, I have transferred rental property to them.

I suppose one can be conservative or aggressive in their interpretation of gift rules. The IRS will have the final say on the matter, perhaps thirty years down the road.
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Halicar
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

Post by Halicar »

toddthebod wrote: Sat Feb 10, 2024 2:16 pm
Halicar wrote: Sat Feb 10, 2024 2:01 pm
toddthebod wrote: Sat Feb 10, 2024 1:47 pm
Halicar wrote: Sat Feb 10, 2024 1:42 pm Last summer one of my neighbors had a cookout and invited everyone in the neighborhood. I went and did not pay anything. Should I ask them for a receipt?
Did your neighbor also give you $17,000 in cash?
No, but it seems that the law does not apply solely to cash gifts above $17,000. I was being a bit of a smart alec, but it is troubling when the law is essentially impossible to follow.
If they didn't give you $17,000 in other gifts, the free barbecue is under the annual exclusion and is therefore not reportable.
I appreciate your replies. My example was probably a red herring, but I think it's standard advice that wealthy individuals can write checks to their children for $17,000 every year with no reporting requirements. But if they do that don't they then have to keep track of every Super Bowl party and Christmas stocking? And then we're back at "well, yes, the law says you have to do this but nobody actually does it."
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Re: Who In Their Right Mind Files Gift Tax Returns? And Why?

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