If you made large gifts to your children, grandchildren, or other heirs last year, it’s important to determine whether you’re required to file a 2021 gift tax return. In some cases, even if it’s not required to file one, it may be beneficial to do so anyway.
Who doesn’t need to file?
No gift tax return is required in certain situations. For example, gifts under the above $15,000-per-recipient exclusion, and gifts to a U.S. citizen spouse. Educational and medical expenses paid directly to the school or health care provider are excluded. Contributions to political or charitable organizations also are not considered gifts.
Who must file?
The annual gift tax exclusion for the 2021 tax year was $15,000 and has increased to $16,000 for tax year 2022. You must file a gift tax return if, during the tax year, you made gifts to a recipient over the annual exclusion. Gifts can be made for more than $15,000 in 2021 without a gift tax return being required if the gifts are to different recipients.
Other situations that require a gift tax return include gifts split with your spouse to take advantage of your combined annual exclusion. Gifts to a noncitizen spouse over a separate annual exclusion ($159,000 in 2021), gifts of future interests, such as remainder interest in a trust, also trigger a filing requirement. Up to five years’ worth of annual exclusions can be accelerated when gifting to a Section 529 college savings plan. Doing so triggers a gift tax return requirement.
If a return is required, tax is due only if you’ve used your lifetime gift and estate tax exemption. For 2021, this was $11.7 million. Often, while a return is required, there will be no tax owed.
Why you might want to file
When transferring hard-to-value property like an interest in a family business, you should consider filing even if not required to. Doing this starts the three-year statute of limitations. This generally prevents the IRS from challenging your valuation past the three-year statute.
The deadline is April 18
The gift tax return deadline is the same as the income tax filing deadline. For 2021 returns, it’s April 18, 2022. An extension is available to October 17. This is an extension to file, not to pay, so any expected gift tax due must be paid by April 18. If you are not sure if a gift tax return is required or potentially should be filed even if not required, your accountant at Wegner CPAs will be happy to advise.