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Wendy is a very generous single woman. Prior to this year, she had given $11,180,000 in...

Wendy is a very generous single woman. Prior to this year, she had given $11,180,000 in taxable gifts over the years. In the current year, Wendy gave her daughter Rachel $500,000 and promptly filed a gift tax return. Wendy did not make any other gifts this year. How much gift tax must Wendy pay the IRS because of this transaction? a. $0. b. $15,000. c. $194,000. d. $200,000

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Answer #1

If a taxpayer were to gift another person over the annual amount of $15,000, then the amount needs to be reported in the gift tax return IRS Form 709, when filing his/her annual income tax return.

The annual exclusion limit is different from lifetime exemption. With annual exemption limit, you can gift each child or family member $15,000. However, if you gift a person $ 500,000, you can choose to deduct the extra $ 4,85,000 from your lifetime exclusion limit of $11.18 million or pay tax on the extra $4,85,000. If you opt to deduct the amount from your lifetime exclusion limit, then you must file IRS form 709, even though you are within your exemption limit. The reason you must file is so that the IRS can keep track of value of the total amount of gifts bequeathed by you.

Assuming Wendy has not expired her lifetime exclusion limit, we are concluding that there is no need to pay tax.  

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