Tag Archive for Gift Tax

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.

Written by | Posted in Estate Planning Tax • IRS

“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.

Written by | Posted in TaxConnections

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

Written by | Posted in North America • Property Tax • Real Estate
  Recent Entries »