Gift tax form for prior years

[tax-novice2]

Hi,

I just realized that I have not filed form 709 for prior. years. All the gifts were within the IRS limits ($15000) and to my own children so I thought that form 709 is not needed. But recently I read that filing it is a good practice.

Can I now file for 709 for prior years? How far back can I go?

[Mike9241]

where did you read that?  for cash gifts, you're wasting your time.  for gifts of property, you might file to establish the date of the gift and both FMV and your cost basis which the donee needs (still it's not required. you could just give the donee a letter stating the above facts).  Filing past returns when not required might raise questions at the IRS and that might result in audits of your tax returns and finances. I don't advise it.

[tax-novice2]

I recently opened a bank account for one kid and was planning to put the money into it. Was also considering opening a brokerage account for them so that they understand investing. I don't want this gift to cause problems for them in future by being counted against inheritance limits (in the small chance that we actually hit it).

I read about the good to file 709 for documentation purpose here https://www.schwab.com/learn/story/sharing-wealth-how-lifetime-gift-tax-exemption-works

[tagteam]

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@tax-novice2 wrote:

I read about the good to file 709 for documentation purpose here https://www.schwab.com/learn/story/sharing-wealth-how-lifetime-gift-tax-exemption-works

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The article referenced gift splitting in terms filing a 709 "for the purpose of documentation" and not for any other reason.

[bosso3]

Did you read the entire article that you referred to?

Please go back and carefully reread it.

Also, your question mentions a gift for "one kid", but later refers to "them" - implying more than one person - or does "them" mean multiple gifts to the same person?  In different years or in the same year?

Gift tax is determined on the basis of dollars given to a specific person per year.

Did any of your gifts exceed the $15,000 per year per person exclusion?

(In 2021, gifts of less than $15,000  per person, per year, are not subject to gift taxes - they are excluded.) 

If the gifts were under this limit, then you do not need to report them.

If the gifts were over this limit, then you do need to report them

Later, The article you mention states "For 2021, an individual’s combined lifetime exemption from federal gift or estate taxes is $11.7 million."

Are you seriously concerned that you will exceed this lifetime exemption of $11.7 million?

If your answer is yes, then I suggest that you may want to pay an advisor to develop an estate plan to help minimize the tax impact.  If I were in that situation, I would not want to my guide to be an open forum such as this one.  Note that not all of your assets at the time you die need to be part of your estate, hence the need for an estate plan.

If your answer is no.  You have no need to worry about filing the form 709.

Just in case you "actually hit it" big, you can worry about gift and estate tax exclusion limits at that time.

If this does not answer your question, please provide more specific information and numbers to help us understand your situation.

You can read more about IRS and gift taxes here

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-tax... 

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[tax-novice2]

Two kids.

None of the gifts exceed $15,000 per person per year.

My challenge is that we have been somewhat lax about explicitly identifying in provable terms (to the IRS) the gift given to the child. We had not opened a proper bank account for them. I just recently did that for one kid and also thought why not open a brokerage account for them. Now we have a formal vehicle to identify the money in their name whereas previously it was just lying in cash or some in my savings account (though we identified it as a gift for the child). Now I want to make it formal so that in future there should be no question from IRS whether gift was actually given to the child. So the thought of 709 came up.

Hitting the limit of 11.7 is very hypothetical but given the rate inflation, the limit may not amount to much 40-50 years from now. 

[NCperson]

THe 11.7 million is indexed for inflation each year, if that helps. 

[Critter-3]

You can now give up to $16K per person per tax year without needing to file a form 709  but if you really want to do so you can get the forms from the IRS ...  https://www.irs.gov/forms-instructions

[tagteam]

Just for the record, the (lifetime) estate and gift tax exemption is $12.06 million per individual for 2022, but it sunsets at the end of 2025 at which point it will drop back down to $5 million (approximately $6.5 million when adjusted for inflation). That is assuming Congress does not act in the interim.

[bosso3]

Thank you for the additional info.  I'll share some thoughts.

1)   On a personal level, I think it is wonderful that you are giving gifts and considering having the gifts be a way of teaching the kids about investing.  If the gifts are in the kids' names, remember that when the kid reaches the age of majority, they can spend the gift on whatever they want to.

2)  From a tax perspective, you are not required to file the form 709 as long as you do not exceed the maximum gift exclusion.

3)  From a personal perspective, I don't file tax forms unless I am required to or unless it is advantageous to do so.  I personally don't file form 709 because I never exceeded the exclusion amount.

4)  As reported by other contributors to this discussion, both the gift and estate exclusions are currently indexed to inflation.  Thus it is reasonable to think in constant dollars for longer terms - such as the 40-50 years you mentioned.  Using constant dollars consider the following: 

If you were to give each kid $15,000 per year * 2 Kids * 40 years = $1.2 Million, which is still far below the lifetime exclusion limit.

5) In my personal opinion, it is never too early to start thinking of and set up an estate plan, a will, and medical power of attorney documents.

6)  In my personal opinion, I would not worry about filing the form 709.  But you certainly have the option to do so.

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[tagteam]

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@bosso3 wrote:

Using constant dollars consider the following: 

If you were to give each kid $15,000 per year * 2 Kids * 40 years = $1.2 Million, which is still far below the lifetime exclusion limit.

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I mostly agree but tend to think in "constant Congress" terms as well because there is no such thing as a "constant Congress" (it changes every few years) and it was not all that long ago when the estate tax exemption was $1 million and the maximum estate tax rate was 50%. As a result, maximizing the annual exclusion is generally a really good strategy.

[tagteam]

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@bosso3 wrote:

...But you certainly have the option to do so.

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In my personal opinion, I think that option is generally not exactly a great idea as it can draw scrutiny that would not otherwise be drawn.

I am not sure about anyone else but, personally, I have not heard about anyone being audited for not filing a form they were not required to file ("lifestyle" audits aside).