Tax is a specified amount of money that is paid by a person or any other legal entity to the state failure to which is punishable by law. Gift tax is tax paid on gifts. A gift can be defined as a gratuitous advance of ownership of a property from one party to another. The gift tax is paid by the person giving the gift. You should also understand a gift tax is only filed if the value of the gift is more than $13,000. In the case of spouses, the gift tax limit is $26,000. The spouses should be legally married and have their marriage registered by the Attorney General.
Gifts include money and property or the use of a property or a service without expectations of paying. A reduced interest on a loan or selling a product for less its value may also be considered as a gift. There are gifts that are exempted from tax rules. These include someone else's medical and tuition expenses that are paid directly to the institution, gifts to charities and gifts to your spouse.
It is very important to send Form 709 whenever you make a transaction of more than $13,000 with a family member. This should be the case even though it was not a gift. Otherwise you may end with problems from the IRS.
Sometimes, you may realize that the total value of gifts you have sent to a particular gift done exceeds the set gift limit of $13,000. In this case you may tend to panic. This should not be the case because you will not owe any gift tax unless you exceed the $1 million lifetime gift exempt tax limit imposed on everyone. When your gifts to a person exceed the annual limit of $13,000, this is then referred to as taxable gifts. It may require you to file a federal gift return tax, using Form 709 with the IRS. The deadline to make your filing is the same as with your form 1040. To get more time to prepare Form 709, Form 4868 is filed. This has the effect of extending your Form 709 and Form 1040 filing deadline by some time to allow you fully put together the returns. Incase you want to extend the deadline of Form 709 only; you will need to file Form 8892.
It will save you much trouble from the IRS if you always file Form 709 when you sell hard to value assets to a family member.