A gift tax occurs when one person or business gives money to another individual or company. If this money is taxed, then the amount it is taxed is referred to as gift tax. Essentially, it is a tax that accompanies money that has been gifted to you.
It is recommended that you file a gift tax return. While many people do not do this, it is safer to file this tax return. This is because you can face consequences for failing to do so.
What are these consequences? Continue reading to find out what could happen if you don’t file your gift tax return.
What Happens If I Don’t File A Gift Tax Return?
The reason why we strongly advise filling in a gift tax return is that the IRS is becoming increasingly vigilant when it comes to these taxes.
If you fail to fill in this form correctly, you could be fined. The Failure to Pay Penalty is based on the amount of tax owed and how long it has not been paid. There is a 0.5% increase on unpaid tax for every month that you have avoided paying this tax.
Consequently, you can end up paying a lot of money. This is especially true if the unpaid gift tax dates back years.
Even if this failure to pay is not found when you are alive, it can be found afterward. As a result, the penalty can be imposed on your estate.
It is easier for the IRS to notice these gift taxes because they audit a person’s estate once they have passed away.
If the IRS believes that the money has not been filed because of fraud, you could be fined even further. Namely, the penalty will rise to 5%.
What Gifts Are Taxable?
Even if a gift is not taxable, it is still a good idea to file a tax return. Though that likely sounds illogical, there have been instances of people being fined for failing to file one of these forms even though their gift was not taxable.
Not all gifts are taxable. If they do not meet these conditions, then these financial gifts will not be taxed. Here are some of the factors to bear in mind:
- They are above the tax exclusion figure. This changes annually, so it is worth checking the exact figure. In recent years, this limit has been $16,000. Therefore, if your gift is below this, it will not qualify.
- If the gift is received by a married couple and is over the exclusion amount, they both must claim the tax.
- Individual gifts for medical or educational purposes are often untaxed. Plus, donations made to political organizations may also not be taxed. If you merely send money to a relative for their education, this money would still be taxed. Yet, if you sent this directly to their education provider, the money would not be taxed.
When Should You File A Gift Tax Return?
This document must be filed in the first quarter of the year. The tax deadline traditionally occurs in April, though the specific date can fluctuate each year. If you miss this deadline, you can file for an extension. You can either fill this form out online or in person.
Traditionally, the deadline for tax returns in the United States is April 15. As a consequence, this date has been dubbed “Tax Day.” Luckily, you can submit your taxes before this deadline.
How Do You Fill Out A Gift Tax Return?
Gift tax returns are known as Form 709. These forms can be found online and printed so that you can fill them in. This form can be quite complex, especially if you have limited experience with this kind of tax return.
The form requires a lot of information. You will need not only information about yourself but also the donor. You will need their name, social security number, and address.
Moreover, you will need to state your relationship with the donor. For example, if you have been given money by a relative, you should write how they are related to you.
Once you have filled in these details, you will need to move on to information about the donation itself. This includes the date it was given, the reason for the gift, and the amount.
If you struggle to fill this form in yourself, you might want to ask someone for help. The IRS offers assistance. Plus, anyone with financial knowledge might be able to offer help.
It is best to keep details of this gift tax return for the rest of your life. It is important to keep detailed and up-to-date information on your taxes.
Therefore, if an issue arises regarding your taxes, you will have documentation that could solve these problems.
Frequently Asked Questions
What Powers Does The IRS Have?
The IRS, standing for the Internal Revenue Service, is a major service within the USA. This organization gathers lots of information on individuals and businesses so that they can determine whether or not they are abiding by tax laws.
If they find that an individual or organization is guilty of evading tax, the IRS can inflict penalties. They have lots of powers, including the ability to seize property and assets. Hence, it is important to keep on top of your taxes.
Can You Be Charged For Parental Debt?
Yes, if your parents have died and left behind debt, the IRS can charge you this money. Sadly, the debt will be transferred from the parents to the children. If this happens, you should try to pay off your parents’ debts as soon as possible.
While filling in tax forms is far from a fun activity, it is nonetheless essential. This is particularly true if you wish to avoid hefty fines.
It is simply not worth taking the risk of being fined when you can easily fill in a gift tax return. Hopefully, we have convinced you to do the right thing and complete one of these important forms.