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I thought the IRS gifting rules were pretty straight forward and I understood them. Any individual can give $19K (in 2025) to anyone else w neither a gift tax or reporting requirement. Seems pretty clear.
Then I dug a little deeper online which was maybe a mistake and came up w some issues.
One was the IRS reference to “gift splitting” by spouses where one spouse can use the other spouses gift exemption to gift in excess of the $19K. So, if spouse #1 wants to gift $25K to a child, he can use use his $19K exemption and $6K of his spouse’s exemption assuming spouse had room remaining in their $19K exemption. But if you do this, it requires filing the IRS Form Gift Tax 709.
My understanding is spouses can freely gift to one another w no reporting requirement and any gift made from a joint account is considered to have equally come from each party so why would anyone want to go through the reporting hassle of “gift splitting”? Is this only applicable where one spouse wants to make a gift to another party from an account that he does not jointly hold with his spouse? If so, wouldn’t the spouses want to just transfer $$$ to a jointly held account and gift from there to avoid the 709 reporting? What am I missing?
Also, is there any requirement to make individual $19K distributions from a joint account or is one $38K distribution ok under the assumption that $19K came from 2 joint accountholders thus no gift tax and no reporting requirement?
Finally, are there any “innovative” ways to exceed the reporting limits? I read one scenario where a gift from a parent well in excess of the yearly exemption was structured as a loan with the yearly repayments structured to coincide with the gift tax exemption and would then be forgiven. Does that pass the smell test? The glitch I see is if the “loan” is to assist in a mortgage application, would this not adversely affect the recipient’s debt ratios and credit worthiness or does documenting the downstream payment forgiveness make everyone happy?
I could also be overthinking this whole thing and I should just make whatever gift I/we want and fill out the IRS 709. I’m just trying to avoid unnecessary administrative filings while staying administratively pure with Government.
I’m giving my Roth proceeds to my boys monthly. They get $5000 per year to put in their own Roth accounts. It’s a way they can have an inheritance while I’m still above the grass.
But I realize that’s not part of what you were asking.
I’m with you! We’ve been making yearly gifts to the kids that coincidentally coincide with the Roth contribution limits. 😁
One thing I hadn’t considered until I read the form 709 instructions is that while gifts to charity don’t trigger filling out form 709, once you’re required to fill-out form 709, you need to list all of your charitable contributions, which sounded like kind of a pain to me, so we’ve been keeping below the limit for that reason.
Hi Mark,
I had over a 40+ year career as a CPA that included preparing form 709 United States Gift (and Generation-Skipping Transfer) Tax Returns. Here are some thoughts for you to consider-
Gift tax returns can appear to be simple and for a one time gift above the annual exclusion they just might be. Example – gifting a lot of cash to a child to buy a house.
Staying under the annual exclusion amount to eliminate the need to file form 709 works best if you can do it and still make the gifts you want to make. If both husband and wife are going to make large gifts from a joint account I recommend separate checks with a descriptive memo such as 2025 gift from Dad, 2025 gift from Mom. Better yet if you have separate accounts make the gift from the separate account. Eliminate possible arguments with the IRS where possible.
The estate and gift tax system we operate under is unified. After you exceed the annual gift exclusion the excess reduces the (2025) $13.99 million lifetime exemption (as indexed for inflation) each individual has during life and you are then taxed currently at a 40% rate if you make taxable gifts above the current lifetime exclusion. This typically means a lot of compliance work and no actual tax paid. This may not be true for high net worth individuals which I am not addressing here. Current gift tax returns form 709 build upon the last gift tax return. I recommend a permanent file for all gift tax returns filed and supporting documentation and let your future executor know it exists and where it can be found.
Gifts subject to the annual exclusion must be present value gifts, think cash and marketable securities. Non present value gifts, think gifts to trusts, have a different set of rules but may mean no annual gift exclusions.
If you are making an above annual present value gift to a grandchild there is additional work needed on the 709 as you have made a Generation-Skipping Transfer (GST). GST requires a separate exemption amount and additional taxes if you use up your GST exemption. I have only hit the highlights on GST here, consider this paragraph awareness.
Finally, your question about why to elect to split gifts.
I generally do not like to split gifts. The 709 instructions says it best –
If you and your spouse both consent, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you
I highlighted and underlined all. So not just taxable gifts to a family member but all gifts that both you and your wife made to everyone (charitable gifts excluded), think Christmas gifts, birthday gifts and buying your buddy a beer.
That said sometimes a high net worth individual owns a closely held business and their spouse does not have a ownership interest and the owner wants to gift a large fractional interest and also split the gift for gift and estate tax purposes. Thus sometimes circumstances require gift splitting for desired tax results.
All of these gift tax and GSTT rules were designed for an era when the estate exemption was $600,000. They are understandable in that context. They make no sense in the world of today when the exemption is more than $10M per person.
Generally speaking when the government is serious about people complying with laws/rules they create penalties for non-compliance.
Anyone who when they die has assets which added to amounts they have given away in their lifetime over the annual limits is less than the estate tax exemption at the time of their death does not need to file an estate tax return. Since no estate tax return is required, whether or not any form 709s were filed is then moot.
Penalties for not filing form 709 only exist when at the time of the gift it would be more than the lifetime exemption.
So, it seems to me that the only real risk in not filing a 709 when your assets are a fraction of the exemption is that a future government might reduce the exemption amount. Or, perhaps you might win a billion dollar lottery prize.
As you say, “This creates a lot of compliance work and no tax owed.” When there is no penalty why comply?
I see your question “When there is no penalty why comply?” as a reasonable question that deserves a response.
Concerns from the taxpayer perspective –
With no filing of a required 709 return the statute of limitations period never ends. A taxpayer may accept never having the statute of limitations expire but your executor may not be willing to do so just because you did. Your executor has an obligation to file any of your returns you have not filed as of the date of your death. No one likes a long period until your estate can be closed.
You cite some of the typical situations such as a future government might reduce the exemption amount or you win a large lottery as causing a taxable estate as a consideration for not filing a 709. While I expect the percentage of estates that are taxable to be tiny, I do not view unknown future events which causes a taxable estate at death as a zero probability event. For those who have saved well and live a very long life the magic of compounding may well result in a taxable estate. I wear my seat belt too.
Your comment Penalties for not filing form 709 only exist when at the time of the gift (if) it would be more than the lifetime exemption. I agree that comment is currently true for the civil penalties but what if future IRC 6651 rules for civil penalties changes?
As I understand tax law an element of 26 U.S.C. Section 7201 (fraud) penalties includes Willful Negligence. Willful Negligence is often defined as a conscious disregard for a known risk or duty. These criminal penalties do not currently require a taxable gift above the lifetime exclusion amounts.
Concerns from the preparer perspective –
Preparers are bound by the requirements of Circular 230. For me, I would fail both those ethical standards and my professional standards if I were to recommend to a client to ignore the laws and just skip filing a required 709 because there is no civil penalty. I have been fortunate that every professional firm I have worked with takes compliance with their IRS and professional standards to be paramount in providing professional services.
I encourage keeping your gifts as simple as your circumstances permit and below the annual exclusion amount to meet the criteria for not having to file a required gift tax return. Otherwise, I will recommend filing the required federal and state gift (just you Connecticut) returns.
Great info. Thanks. The lifetime exclusion is never going to be an issue here. A one time cash infusion for a house is a possibility. Based on your advice, we’ll forget the gift splitting issue. We gave up separate accounts a few years back but we’ll do separate checks out of a joint account if we exceed $19K. This assumes a millenial even knows how to cash a check. 🙂
I forgot one more thing…..be careful if you plan to gift appreciated shares. In some cases the kiddie tax might apply so check with your tax advisor.
No issues there. Straight up cash but thanks for the clarification.
I’ll start by asking one of our CPAs to jump in, especially if they don’t agree with me. In all my years of preparing taxes I never did a form 709.
Regarding gifts within the legal limit I have never seen the IRS question the absence of a 709 regardless of the accounts the funds came from. I learned of a few people who exceeded the limit in effect at the time who did not file a 709 and were never summoned to come to Jesus, though technically they should have filed.
Still, if you exceed 38K I would recommend filing 709, if for no other reason, peace of mind.
I would also recommend you use a CPA or an Enrolled Agent, as the form is 10 frickin’ pages long and you really don’t want any errors.
Yup. I’m determined to avoid the 709 one way or another. Thks.
Suppose you want to cover the university tuition for a grandchild, but that tuition is more than $19k; how to do it? You can ignore the limit and reporting requirement if you pay the tuition amount directly to the university.
Another method of going over the limit is a provision that allows you to contribute to a 529 by bunching up to 5 years worth of gifts at one time.
Regarding joint gifting with your spouse, we basically ignore the reporting requirement because we gift from a joint account, and both sign the gift card.
Finally, if your estate is going to be less than the Federal estate exemption amount, the gifting limits won’t apply anyway.
Yup. I think both medical and education expenses paid directly to the vendor (not to student or patient) are allowed without limit and are outside the annual gift tax exemption and reporting requirements.
Two things: 1) If you make a gift directly to a university to pay a child’s tuition, it can result in a dollar-for-dollar reduction in aid; and 2) even if you’ll never owe federal estate taxes, giving more than the gift-tax exclusion in any given year will mean filing a gift-tax return.
I don’t know if it works for individuals, though I would assume it would. When I received scholarships from organizations that wanted to write a check directly to the college, I had them include a statement that said, “by accepting this money we agree to not reduce the aid to the student” My college endorsed the check without blinking and my aid was not reduced a penny. For any scholarships I received that did not include that statement, we got a letter the following month stating, “we noticed some changes and recalculated your aid”, coincidentally, reducing my aid by exactly the same amount as the scholarship.
I have had trouble with some organizations not understanding why writing that extra sentence is the difference between a $0 scholarship and actually making a difference to the student they are trying to support.
I understand the legal requirement, however anyone who has an estate that is a small fraction of the federal exemption won’t have to file an estate return, and thus it won’t matter than they didn’t file the gift tax returns. No one will look.