Tuesday, July 26, 2011
Foreign Accounts
The IRS's amnesty program for people with undeclared foreign accounts ends Aug 31. It allows affected taxpayers to pay taxes owed plus a penalty and avoid criminal prosecution for tax evasion. Meanwhile their investigation of foreign banks continues with Credit Suisse, a large Swiss bank.
Wednesday, July 6, 2011
Gift tax basics
The gift tax exemption for 2011 and 2012 is $5,000,000. This is a lifetime exclusion. That means that a person can give up to that amount in his/her lifetime and not owe any gift tax.
A person can also give up to $13,000 each per year to any number of persons without having to count it towards the $5,000,000 and without the need to report it in any way.
If a person gives over $13,000 in a year to any one person, the giver must file a gift tax return. Though no tax is due as long as the lifetime total is under $5M, it officially reduces that $5M, which runs like a declining balance during the person's lifetime of giving.
When the person dies, the remaining balance is used to calculate the person's estate tax exemption.
Because Congress can't make up its mind about these things, the $5,000,000 exemption is scheduled to be reduced to $1,000,000 in 2013. (However, the estate tax exemption will still be $5M.) If that happens, anyone who has gone over $1,000,000 in reportable gifts by then, or who goes over it in 2013 or thereafter, will have to pay a gift tax on any subsequent gifts.
Congress may or may not act to preserve the $5,000,000 exemption. Everyone thought they would do something to avert the expiration of the estate tax for 2010, but the year was virtually over before they did anything.
You should also know that there are certain situations in which the gift tax exemption does not apply.
The top gift tax rate is currently the same as the top estate tax rate: 35%.
A person can also give up to $13,000 each per year to any number of persons without having to count it towards the $5,000,000 and without the need to report it in any way.
If a person gives over $13,000 in a year to any one person, the giver must file a gift tax return. Though no tax is due as long as the lifetime total is under $5M, it officially reduces that $5M, which runs like a declining balance during the person's lifetime of giving.
When the person dies, the remaining balance is used to calculate the person's estate tax exemption.
Because Congress can't make up its mind about these things, the $5,000,000 exemption is scheduled to be reduced to $1,000,000 in 2013. (However, the estate tax exemption will still be $5M.) If that happens, anyone who has gone over $1,000,000 in reportable gifts by then, or who goes over it in 2013 or thereafter, will have to pay a gift tax on any subsequent gifts.
Congress may or may not act to preserve the $5,000,000 exemption. Everyone thought they would do something to avert the expiration of the estate tax for 2010, but the year was virtually over before they did anything.
You should also know that there are certain situations in which the gift tax exemption does not apply.
The top gift tax rate is currently the same as the top estate tax rate: 35%.
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