Tag Archive for Gift Tax

Gift Giving

Debra Thompson

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

New Proposed Regulations 2801 For Covered Gifts/Bequests From Expatriates

Larry Stolberg - 11-9-15

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

7 Tips To Determine If Your Gift Is Taxable

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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

Start 2015 Tax Planning Now! Part 3

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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

Are Gift Tax Audits On The Rise?

Columns of coins and red bow

The IRS 2012 Data Fact Book reports that 258,393 gift tax returns (Forms 709) were filed that year compared to 219,544 in 2011.  The most striking difference between the two years is the aggregate amount of the gifts, which totaled about $135 billion in 2012, reflecting an increase of $84 billion, or 165 percent, over the 2011 total of $51 billion.  Many 2012 gift tax returns were filed in 2013 because the Internal Revenue Service allowed the taxpayer to submit Form 709.

Have a Gift Tax Audit Problem? Gift Tax Audits Require an Experienced Tax Attorney.

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DOMA Tax Issues – Still Outstanding

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Someone recently asked me what federal tax issues are still outstanding regarding DOMA and the effect of the June 2013 Windsor decision. There are still a few income tax issues that come to mind (there are also estate and gift and state tax issues as well), that were not covered in the initial guidance (Rev. Rul. 2013-17). Here is my list. Do you have any input or additional ones to add?

Amended Returns

Will the IRS issue guidance to assist in the filing of amended returns? The current version of Form 1040X is not conducive to showing how two prior separate returns will now be treated as one MFJ return. Read more

Senate Finance Committee Blank Slate Project 2013 – Senator Rockefeller’s Suggestions

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Evaluation of Senator Suggestions for the Blank Slate Project

As noted in my 9/9/13 post, I’m going to summarize and analyze proposals senators offered to the Senate Finance Committee, and that the senator made public. Despite falling behind on my project, as tax reform likely heats up in 2014, I’m back at it as I’d like to look at and share what might be a broader array of proposals and issues. In no particular order, the second set of suggestions I’m commenting on are from Senator Rockefeller (D-WV) (7/26/13 letter). Senator Rockefeller is a member of the Senate Finance Committee.

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The Gift Tax In A Nutshell

Cash wrapped Gift Box

a. How the Federal Gift and Estate Tax Work Together

The federal gift tax is part of what’s called the “unified” federal gift and estate tax. Gift tax applies to lifetime gifts; estate tax applies to assets left at death. The idea is that whether you give assets away while you’re alive, or leave them at your death, they’re taxed the same way, at the same rate. After all, if there were no gift tax, then anyone could completely avoid the estate tax by giving everything away just before death.

Very few Americans need to worry about federal estate tax or the federal gift tax. Why? Because under current law, each of us has a lifetime gift and estate tax exemption of $ 5.25 million, which means that you can leave or give away up to $ 5.25 million without owing any Read more

Don’t Look A Gift Horse In The Mouth: All About Gifts And Taxes

Cash wrapped Gift Box

It’s the proverbial time of the year when there are a lot of gifts exchanged. Some are store bought, some gift cards & there are those who just get plain ol’ cash.

What constitutes a “gift” in the eyes of the IRS?

• You make a gift if you give property, including money, or the use of or income from property, without expecting anything of equal value in return.
• You also make a gift if you sell something at less than its full value
• There’s a gift made if you give an interest-free loan or reduced interest loan Read more

Estate Planning Part 3 – Old Age

TaxConnections Blog Picture After a lifetime of working, retirement sounds like it would be fun.  When you get to retirement there are lots of changes in your life and one of them should be your estate planning.  At this point your kids are grown and maybe you have grandchildren.  Reworking your will and trusts to include grandchildren and account for other changes in the family can be important.

Gifting can play a major role in your estate planning.  In Minnesota, the estate and gift exemptions are only $1M so annual gifts can be useful in keeping an estate under the $1M threshold.  A couple of kids plus spouses, plus a few grandchildren can make for a big gifting base.  In 2013 you can gift $14,000 to each person without filing a gift tax return.  If you are so inclined, you could gift $14,000 to each person and quickly reduce the assets in your estate.

Another way to change your estate planning is to change the beneficiary designations on your retirement plan accounts.  IRAs and 401ks can be a great way to skip generations in your estate planning.  When a non-spousal beneficiary receives an IRA or 401k from an estate, they are required to make minimum distributions each year.  Those minimum distributions are based on the age of the beneficiary.  A 55 year-old child that inherits an IRA will need to withdraw 3.4% each year, while a 25 year-old grandchild only has to withdraw 1.7% each year.  That can make a huge difference over time as the account grows tax free.  Each family situation is different and the needs of the family and each beneficiary can vary, but it’s important to update your estate planning at each stage of your life.

“Y” Is For Yuletide

TaxConnections Picture - Chris Wittich A - Z“Y” is for yuletide.  Yuletide basically just refers to Christmas in the United States and that means a time for gifts.  If you want to start shopping now for your favorite accountant, I like gummy bears, things that are orange and tickets to sporting events.  As long as you keep your gifts under $14,000 for the year you won’t need to file a gift tax return.  Avoiding the gift tax return is nice, but when can gifts be tax deductible?  Well my grandmother taking me out to dinner isn’t tax deductible and my mother taking me to a hockey game isn’t tax deductible, but what about a referral source taking me to that same hockey game?  It might have a different result.

A referral source is taking me to the game because they want to talk business and improve our relationship so we can find opportunities for us to work together in the future with clients.  The gift of tickets to the game is for both business and personal reasons so the IRS allows 50% deduction for entertainment expenses.  The IRS does audit this area often so keeping receipts and documenting the business purposes is very important.  That’s why a hockey game with my mother isn’t deductible; there is no business purpose for that.

Sometimes companies send out gift baskets to clients around the holidays.  Up to $25 is fully tax deductible for those gift baskets.  I have always thought that chocolate makes for a great gift; everybody loves chocolate.  The differences between a gift and entertainment expense can be tricky to determine but in many cases you are allowed to choose which would be more beneficial.  Sometimes deducting 100% up to $25 is better and sometimes deducting 50% of the total is better. As usual it depends on the facts and circumstances how and when the gift and entertainment rules apply.

Did I mention there’s only 45 more shopping days for your favorite accountant until Yuletide?

Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.

US Tax: Property Transfers At Divorce And The Foreign (Non-US) Spouse

House and lawAs if divorce were not a stressful enough time, the complexities of the US tax rules when a non-US spouse is involved just make it all the more unbearable.

Here are the US Tax basics to keep in mind with respect to property transfers. (Payments of alimony will be the subject of another tax blog posting).

You May Have Both Income Tax and Gift Tax Issues

Under the general US tax rules, asset transfers between spouses incident to a divorce are tax-free under Code Section 1041. There is no realization of a gain or loss by the transferor-spouse upon such a transfer of property. Instead, the transfer is treated as a “gift”. If the spouses are both US citizens, the case is straightforward and simple – no US Income tax or Gift tax consequences will result. Not so simple if one spouse is a non-US citizen and even more complex if the non-citizen spouse is also a “nonresident” alien (NRA).

A transfer is treated as incident to a divorce if it takes place within a year of the divorce or is “related to the cessation of the marriage”. Generally, a transfer is related to the cessation of the marriage if it is pursuant to a divorce or separation agreement and occurs not more than 6 years after the date on which the marriage ceases.

Very significantly, in order for the income tax-free treatment of Code Section 1041 to apply, the recipient of the property cannot be a “nonresident alien” (NRA). For example, if you transfer appreciated stock to your NRA spouse as part of the divorce settlement, you will have to pay tax on the inherent gain in the stock, generally just as if you sold it. In addition you may have Gift Tax consequences. Read more