As the dreaded April 15th tax deadline looms close, millions of taxpayers are digging through receipts looking for last minute deductions and meeting with tax professionals to try and find ways to limit the amount of taxes they owe this year. While taxpayers do this every year, one thing that many do not do on a regular basis is prepare and file a gift tax return; however, this year you may be required to do so.
Because of the roller coaster ride that taxpayers went on last year waiting to see what would happen to the lifetime exemption to the gift and estate tax, many taxpayers made last minute gifts to ensure that they could take advantage of the historically high limit before it plummeted on January 1st. As it turned out, Congress permanently extended the limit just after the new year started but not before many people made substantial gifts that apply to the 2012 tax year. These gifts may require you to file an IRS Form 709 gift tax return.
A taxpayer is required to report many gifts even if no tax is due on the gift. This requirement allows the IRS to keep track of all lifetime gifts made by a taxpayer in order to know when the taxpayer has exceeded the lifetime exemption amount. Not only does the IRS keep track, but so should a taxpayer. When you throw out old tax returns, be sure that you do not pitch your old gift tax returns. After your death, your executor may need to review them to determine how much you gifted during your lifetime and, more importantly, how much you already paid in taxes on those gifts.