Question

Lance has two adult children from a previous marriage. He has gifted them money for the past three years from his separate bank account and his wife has consented to split the gifts each year. Lance made gifts to his children as follows:

2016: Gifts of $60,000 to each child

2017: Gifts of $40,000 to each child

2018: Gifts of $50,000 to each child

What is the amount of Lance’s total taxable gifts?

Will there be a gift tax liability? Explain

Explain the gift tax filing requirements. Will Lance have to file a gift tax return?

Answer 1

Answer : -

The annual exclusion on gifts for year 2016 and 2017 are $14,000 per child, if the spouse split the gift the total exclusion will be $14,000 × 2 = $28,000.

The annual exclusion on gifts for 2018 is $15,000 per child, if the spouse split the gift the total exclusion will be $15,000 × 2 = $30,000.

1)The amount of total taxable gifts = i) For 2016 gift for each child is $60,000 and the annual exclusion of gift is $28,000(calculated above), the amount of taxable gift = $60,000 - $28,000 = $32,000. For 2 children's the amount of taxable gifts = $32,000 × 2 = $64,000. ii) For 2017, gifts for each child is $40,000 and the annual exclusion for gifts is $28,000(calculated above), the amount of taxable gift = $40,000 - $28,000 = $12,000. For 2 children's the amount of taxable gifts = $12,000 × 2 = $24,000. iii) For 2018, gifts for each child is $50,000 and the annual exclusion for gifts is $30,000(calculated above), the amount of taxable gifts = $50,000 - $30,000 = $20,000. For 2 children's the amount of taxable gifts = $20,000 × 2 = $40,000. The total amount of taxable gifts = i + ii + iii = $64,000 + $24,000 + $40,000 = $128,000. The total amount of taxable gift for 2016 is $64,000, for 2017 is $24,000, for 2018 is $40,000.

2) Yes, there will be a gift tax liability because Lance has made payments of gift over and above the exclusion amount of the gifts. The amount above the exclusion is taxable for that year. The gift tax liability for 2016 is $64,000, for 2017 is $24,000 and for 2018 is $40,000. The exclusion limit for 2016 and 2017 is $14,000 per child, for 2018 is $15,000 per child, if spouse splits the gift Lance can double the exclusion amount of gift.

3) The gift tax liability has to be paid by the giver, the gift is taxable only in the hand of giver and in the hand of receiver.

Following are the gift tax filing requirements Lance must file form 709 of IRS for gift tax filing. a) Determine if filing form 709 is required. b) Determine what gifts needs to be reported on form 709 if filing is necessary. c) If the person giving the gift has a spouse, determine if two people will prefer to split the gift and filing requirements. d) Complete the general information part of the form, which is located in part one. e) Details the gifts line by line on Schedule A "Computation of taxable gifts" for parts one, two and three of the form. f) If applicable, complete the Schedule B, "Gifts from prior period" Schedule C "Deceased spouse unused exclusion amount" and Schedule D "Computation of Generation-skipping Transfer Tax" g) If gift is listed on part two or three of Schedule A, complete Schedule D. h) Complete Schedule A part four, "Taxable Gift Reconciliation" i) Complete part two of the first page of form 709, "Tax Computation" j) Sign and date the form.

4)Yes, Lance has to file a gift tax return. Every tax payer giving gifts has to file a gift tax return even if the gift amount is less or equal to the exclusion gift amount.