This is the final part of a three part series which examines sales of gifts, non-business bad debts, and securities. In the first part, we discussed the general aspects of capital gains and losses, the brokers reporting to investors, how and where they are reported on Form 1040 and supporting schedules. The previous part discussed the tax implications for wash sales stock rights, small business stock, and inheritances.
Archive for Gift Tax
If you gave any one person gifts valued at more than $14,000, it is necessary to report the total gift to the Internal Revenue Service. You may even have to pay tax on the gift.
The person who received your gift does not have to report the gift to the IRS or pay either gift or income tax on its value.
You make a gift when you give property, including money, or the Read more
The IRS is the federal agency which has the most direct contacts with Americans. Dealing with the IRS is never easy when addressing federal estate tax returns. The starting point is 75,000 pages (in fine print) of the Internal Revenue Code and Regulations which Americans must somehow master to file accurate tax returns including estate taxes.
To make life even more difficult, irrespective of the IRC and Regulations, the IRS creates a number of procedural requirements necessary to complete various tasks involving the IRS’ contacts with taxpayers. One such situation involving the filing of Federal Estate Tax Returns (forms 706 and 706-NA) has been the automatic issuance of closing letters (IRS Letter 627, catalogue # 40285J) when the IRS has completed reviewing these forms. Under Section 6324 of the IRC, the IRS has a 10 year lien on all property which appears on an estate tax return. In order to avoid personal liability, the executor of the estate and anyone else who had contact with either the assets or proceeds of the estate (see Section 2203) can be held liable for any unpaid tax unless one receives a form 5173, Federal Transfer Certificate which frees everyone from this potential liability. Form 5173 was always issued in tandem with with the automatic issuance of the federal closing letter. Read more
U.S. citizens or long term residents who are covered expatriates who gift property during their lifetime or have bequeathed property upon their death, to a U.S. citizen or U.S. resident will cause the recipient of the gift to pay gift tax to the extent that the taxable gift exceeds the annual exemption. For 2015, the annual exemption is $14K. For this purpose, resident is one who is domiciled in the United States.
There are also similar rules or application where the recipient is a U.S. trust. Recipients of a “covered gift” or of a “covered bequest” who are charities are exempt from paying the gift tax.
Therefore any U.S. citizen or long-term resident who has expatriated under S877 of the IRS Code AND who is classified as a “covered expatriate” under S877A of the IRS Code will cause the recipient to pay this tax. The tax Read more
The United States Internal Revenue Service has issued proposed regulations to give guidance under section 2801 of the US tax code that imposes a tax (at the highest applicable gift or estate tax rates) on US residents and citizens receiving gifts and bequests from expatriates.
The number of people giving up their U.S. citizenship has accelerated in recent years, in part due to the Foreign Account Tax Compliance Act (FATCA). As we previously posted “It Must Be The Time To Expatriate?” where we discussed that the list of recent US expatriates’ is a diverse: one of the world’s greatest soul singers; a best-selling author, a professional basketball player, architects, artists, lawyers, retirees and financiers. The register of individuals who have “chosen to expatriate”, as the US puts it, shows an Read more
We know that increasing globalization keeps us, Enrolled Agents, on our toes especially when we have to consider advising families, businesses and real property owners who have ties with the US and other countries as well. Thanks to my many clients who have business interests in other countries or still have ties/ families back in the countries they migrated from, I deal with cross-border issues quite often.
Interestingly, this summer we did a work-up for a client who had surrendered their green-card & left the country but due to their length of stay in the country, they could be considered “covered-expatriates”, the clients wanted to set up inheritances for their grand-children who are US citizens. Read more
Gift and inheritance taxes were created long ago to prevent an individual’s assets from being passed on to future generations free of tax. Congress has frequently tinkered with these taxes, and currently the gift and inheritance taxes are unified with a top tax rate of 40%. However, the law does provide the following two exclusions from the tax:
Lifetime exclusion – For 2015, $5.43 million per person is excluded from gift and inheritance tax. This amount is annually adjusted for inflation and applies separately to each spouse of a married couple. Where one of the couple dies and does not use the entire exclusion amount, the unused portion of the exclusion can be passed on to the surviving spouse by filing an estate tax return for the decedent, even if one is otherwise not required. Read more
You may claim as an itemized deduction, any charitable contributions of money or property you made to qualified charitable organizations. Generally, you may deduct charitable contributions of up to 50% of your adjusted gross income, but 20% and 30% limitations may apply in some cases. You may deduct a charitable contribution made to, or for the use of, any organization that is qualified under the Internal Revenue Code.
Defining Charitable Organizations
A qualified charitable organization is a nonprofit organization that qualifies for tax-exempt status according to the U.S. Treasury. Qualified charitable organizations must be operated exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to animals or children, or the development of amateur sports. Read more
If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax.
Here are seven tax tips about gifts and the gift tax.
1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:
• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you paid directly to a medical or educational institution for someone, Read more
Tax Code Changes Create Challenges
How do you work and coordinate with attorneys and financial planners?
We make it a point to communicate with the client’s attorney and financial planner anytime we see anything of financial or legal significance that has happened or is likely to happen. For example, in some cases, by combining the estate and gift tax exemption with the proper use of certain irrevocable trust, millions of dollars in estate and gift taxes may be avoided. If we see that a client may potentially benefit from this type of strategy, we will work closely with his/her attorney and financial planner to implement a plan.
Tax Code Changes Create Challenges
Inheritance taxes and estate planning are a growing concern for affluent baby boomers. What are some of the major issues?
In addition to the double step-up in basis on community property discussed above, the baby boom generation will benefit from some of the most generous estate tax loopholes in history. For example, married couples have complete spousal exemption from estate and gift tax when transferring property to each other. This has not always been the case.
For 2015, every person has a lifetime net gift and estate tax exemption up to $5.43 million. Considering that the top gift and estate tax rate is 40%, this exemption represents an Read more
You may have heard the news report that a women in Omaha, battling cancer, received about $50,000 from strangers after she set up an account with GoFundMe. It was also reported that the IRS is seeking $19,000 of income taxes from her on this amount. [See ABC8, 4/27/15 story and KETV.]
The power of the Internet to easily reach many people throughout the world enables vendors to have a larger market, writers to have more readers, and people seeking funds to potentially raise a lot. Crowdfunding websites can generate funds for many purposes and many of these purposes result in taxable income to the recipient. However, not always. What the woman in Omaha received is a gift under the income tax law.