Personal Finance After 50 For Dummies
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Copyright © 2016 Eric Tyson and Bob Carlson. All rights reserved.

You will need to think about tax returns when planning your finances after 50. Many gifts must be reported to the IRS on Form 709, the gift tax return. The gift tax returns filed over time track your use of the lifetime credit, and taxes are due when the lifetime gift tax credit is exhausted. Here are key points to know about filing gift tax returns:

  • Gifts must be reported on Form 709 in the following situations:

    • When they exceed the annual exclusion amount ($14,000 in 2015) — even if they aren’t taxed (because of the lifetime gift tax exclusion or for another reason).

    • When a married couple makes a joint gift that qualifies for the annual exclusion. Each spouse must file a return consenting to the split gift. When each spouse makes separate gifts that don’t exceed the annual exclusion, no return is required. (Though, you probably want to file a return anyway.)

    • When a gift is made that’s less than the annual exclusion amount but isn’t of a “present interest” (and as a result doesn’t qualify for the annual exclusion).

    You should file gift tax returns any time the value of a gift is estimated.

  • A gift tax return is not required when parents or guardians spend for the legal support obligations of minors. Such expenses include food, shelter, medical care, and clothing.

  • The IRS can challenge the value placed on gifts. It has three years after a gift tax return is filed to challenge the value placed on a gift. The statute of limitations is six years if the value is understated by 25 percent or more. When you don’t file a gift tax return, the IRS has no time limit. The value of the gift can be challenged at any time, even after your death. And keep in mind that with estate audits, the IRS often looks at all lifetime gifts. When the statute of limitations isn’t running, the IRS can challenge a lifetime of gifts and assess much higher estate and gift taxes.

You may want to file a gift tax return even when one isn’t required. It provides you peace of mind that you won’t later be audited for valuing your property or assets incorrectly. Suppose, for example, you give property. You must place a value on that property to determine whether the gift is taxable. When you give a publicly traded security (for example, stock or mutual fund shares), assigning a value is easy.

After all, a public price is published for that day. When the gift is of other property, such as ownership of a small business or real estate, the value is debatable. The IRS likes to challenge values placed on such gifts, arguing they’re worth more and are taxable. So filing gift tax returns for gifts of non-publicly-traded property is audit insurance. Keep copies of all your gift tax returns and the documentation of how the values were determined.

About This Article

This article is from the book:

About the book authors:

Eric Tyson, MBA, is a renowned finance counselor, syndicated columnist, and author of numerous bestselling financial titles.

Tony Martin, B.Comm, is a nationally-recognized personal finance, speaker, commentator, columnist, management trainer, and communications consultant. He is the co-author of Personal Finance For Canadians For Dummies.

Eric Tyson is a recognized personal finance counselor, writer, and lecturer. Tyson has been featured on and quoted in hundreds of publications and media outlets.

Bob Carlson is Chairman of the Board of Trustees of the Fairfax Country Employees’ Retirement System.

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