Thanks to the annual gift tax exclusion, you can systematically reduce your taxable estate with little effort. Plus, you typically don’t have to file a gift tax return. However, in certain situations, a gift tax return may be required or recommended. The annual gift tax exclusion for 2024 is$18,000 per recipient (up from $17,000 for2023). So, for example, Jane can give each of her three children and seven grandchildren $18,000 in 2024, for a total of $180,000, without any gift tax liability. No gift tax return is required for these gifts. Furthermore, if your spouse consents to a “split gift,” you can jointly give each recipient up to $36,000 in 2024. However, when making split gifts, you must file a gift tax return (unless you reside in a community property state). Similarly, if your gift exceeds the annual gift tax exclusion amount, the federal gift and estate tax exemption ($13.61 million for 2024) may shelter the excess from tax if a gift tax return is filed.

The failure to file a required gift tax return may result in a penalty of 5% per month of the tax due, up to 25%. Bear in mind, though, that you might file a gift tax return even if you’re technically not required. The return establishes the value of assets for tax purposes and provides a measure of audit protection from the IRS. If you file a gift tax return and honestly disclose the value of the gifts, a safe-harbor rule prohibits audits after three years. But the safe harbor rule doesn’t apply in the event of fraudulent statements or inadequate disclosure.

The due date for filing a gift tax return for 2023 is April 15, 2024, the same due date for filing individual income tax returns. (If you file for an extension, the filing due date is October 15, 2024.)