How is Gift taxation different from Estate taxation?
Property is transferred while taxpayer is living.
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What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?
The exclusion is $15,000 per year per spouse to each individual.
This means that a married couple can gift $30,000 and the gift remains exempt from gift tax.
In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits.
If a Gift is an annuity, what value is used for the Gift?
If the Gift is an annuity, use Present Value to determine the gross Gift.
What is the basic Gift tax calculation?
Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- (Total # of donees x 15,000 Exclusion)
= Taxable Gifts
How is a Gift taxed if a recipient gains a future ownership in the Gifted property?
Recipient must gain ownership and all rights to property to get the annual exclusion.
If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calc.
What are the deductions for Gift tax, besides the annual exclusion?
Deductions for gift tax include:
- Tuition and medical expenses paid directly to the provider organization (Note: NOT books or dorm fees)
- Political contributions (Note: these are typically not deductible, but they are deductible for the gift tax calculation)
- Charitable Gifts
- Unlimited Gifts to spouse
What is the basis of Gifted property for the recipient?
If a loss on sale, basis is FMV on the date of the Gift.
If a gain on sale, basis is same as donor’s basis.
No G/L if donor basis is less than sales price, and sales price is less than FMV at Gift date.
How/when are Gift tax returns filed?
Gift tax returns are filed on a calendar-year basis only.
Due date is April 15.
What are the basic characteristics of complex Trust?
Characteristics of complex Trust:
- Income distributions are optional.
- Accumulation of income is ok.
- Charitable contributions are ok.
- Contributions using tax-exempt income are not deductible.
- Allowed personal exemption of $100.
Key Point: Distribution of Trust corpus (principal) is ok.
What are the basic characteristics of a Simple Trust?
Characteristics of Simple Trust:
- Income distributions are mandatory.
- Accumulation of income is disallowed.
- No charitable contributions.
- Distribution of Trust corpus is DISALLOWED.
- Allowed a $300 personal exemption - even under TCJA
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss.
Any unused NOL flows through to the beneficiaries.
How are expenses and fees related to tax-exempt income handled in a Trust?
Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust.
When is property transferred in an Estate?
After the death of the donor
What amount of a decedent’s Estate is exempt from Estate Tax?
$11,180,000
How are a decedent’s medical expenses handled with respect to an Estate?
Medical expenses paid after death but incurred within 1 year of death go on decedents personal tax return.
How is an Estate’s NOL handled?
Estates can have a Net Operating Loss.
Any unused NOL flows through to the beneficiaries.
What makes up a Gross Estate?
A gross estate consists of Cash and Property FMV at death, or alternate valuation.
What is joint tenancy with respect to an Estate? How is it calculated?
When two non-spouses jointly own property.
FMV at death X % Ownership = Amount in Estate
What is tenancy by entirety?
1/2 of marital assets go to deceased spouse’s Estate
What is tenancy in common in an Estate?
A, B, and C own property.
If A dies, FMV of A’s share goes to heirs.
How is Estate tax handled with respect to a beneficiary?
How to handle estate tax with respect to a beneficiary:
- Property received through inheritance not income to the recipient.
- Property value is FMV at the date of death or 6 months later.
- If the property is sold prior to the 6-month date and the alternative date is used, FMV at the date of sale is used to value property.
- Basis in property automatically assumes LT holding period.
What is distributable net income (DNI)?
DNI = Taxable Income Expenses (from income production)
- Trust beneficiaries only pay tax if earnings are distributed.
- Estate beneficiaries pay tax on DNI, regardless if distributed.
When must a tax-exempt organization file a 990-T for Unrelated Business Income?
If a tax-exempt organization has more than $1,000 of UBI, it must file a Form 990-T.
What are the requirements for a 501(c)3 organization?
Requirements for a 501(c)3 organization:
- Organized and Operated exclusively for exempt purposes.
- No earnings can benefit an individual or private shareholder.
- Can’t attempt to influence legislation as a major part of its activities.
- Can’t campaign politically