12.3 - Gift Tax --- Estates, Trusts and Wealth Transfer Taxes

Question 1

Taxes

What is a transfer tax?

Answer 1

a tax imposed on the person transferring the property

Question 2

Taxes

Who are income taxes imposed on?

Answer 2

imposed on person receiving the income

Question 3

Gift Tax

Define gift tax

Answer 3

transfer tax based off the value of gift tranferred

Question 4

Gift Tax Liability Calculation

Calculate “taxable gifts for the current year”

Answer 4

Gift Amount (FMV on date of gift)

• Exclusions

- Deductions

= Taxable Gifts for Current Year

Question 5

Gift Tax Liability Calculation

Calculate “taxable gifts to date”

Answer 5

Taxable Gifts for Current Year

+ Taxable Gifts for Prior Years

= Taxable Gifts to Date

Question 6

Gift Tax Liability Calculation

Calculate “tentative gift tax”

Answer 6

Taxable Gifts to Date

* Tax Rate

= Tentative Gift Tax

Question 7

Gift Tax Liability Calculation

Calculate “gift tax liability”

Answer 7

Tentative Gift Tax

• (Prior Year’s Gifts * Current Tax Rates)

- Applicable Credit Amount

= Gift Tax Liability

Question 8

Amount of Gift

Define “amount of gift”

Answer 8

Any excess of FMV over consideration paid

Question 9

Amount of Gift

What is the amount of gift made in property?

Answer 9

FMV of property at date of gift

Question 10

Amount of Gift

Calculate the gift amount from the following example:

Neighbor wants to purchase a motorcycle and I have a bike in my garage. The FMV of motorcycle = $10,000 and the FMV of property received = $1,000.

Answer 10

Reportable gift or excess value given up is $9,000

Question 11

Annual Exclusion

What is the annual exclusion for gift tax?

Answer 11

$14,000 exclusion available to each donee

Question 12

Annual Exclusion

How does the annual exclusion effect gift tax?

Answer 12

It often reduces or eliminates gift tax liability

Question 13

Annual Exclusion

Are there limitations to the annual exclusion?

Answer 13

limited to gifts of present interest

Question 14

Gift Splitting

How should spouses file their tax returns if they are gift splitting?

Answer 14

File separate gift tax returns

Question 15

Gift Splitting

How are spouses to treat gift splitting for tax purposes?

Answer 15

Each spouse may treat any gift made as 1/2 made by each spouse

Question 16

Medical & Tuition Costs:

How does student status, foreign or domestic institution & relationship to taxpayer impact the medical and tuition costs deductible for gift tax purposes?

Answer 16

they are irrelevant….gift is still excluded for gift tax purposes

Question 17

Medical & Tuition Costs:

How are “paid” medical expenses treated for gift tax purposes?

Answer 17

Medical expenses “paid directly” to provider are excluded from taxable gifts

Question 18

Medical & Tuition Costs:

How are “paid” tuition costs treated for gift tax purposes?

Answer 18

Tuition “paid to” educational organizations are excluded

Question 19

Medical & Tuition Costs:

How are funds for room, board and books treated for gift tax purposes?

Answer 19

they are not excluded

Question 20

Marital Deduction:

What are the 2 requirements to apply the marital deduction for gift tax purposes?

Answer 20

• Donor & donee must be married
• Donee must be U.S. citizen

Question 21

Marital Deduction:

What is the marital deduction limitation for gift tax purposes?

Answer 21

• Limited to total gifts made
  
  • 1^st reduced by annual exclusion
  • Remainder eliminated by the marital deduction

Question 22

Marital Deduction:

Are gifts to spouses taxable?

Answer 22

No

Question 23

Charitable Contribution:

How much is the charitable contribution deduction?

Answer 23

Deduction is amount of gift reduced by annual exclusion

Question 24

Charitable Contribution:

What amount is deductible for the charitable contribution deduction?

Answer 24

• FMV donated is deductible

Question 25

Spousal Support / Political Contributions:

Is spousal support considered a gift for “gift tax” purposes?

Answer 25

No

Question 26

Spousal Support / Political Contributions:

Are political contributions subject to gift tax?

Answer 26

No

Question 27

Gift Tax Return:

What form is used to file a gift tax return?

Answer 27

Form 709

Question 28

Gift Tax Return:

Identify 3 situations when a gift tax return is not required

Answer 28

• Not required if all gifts under:
  
  • Annual exclusion amount
  • Exclusion for medical / tuition payments
  • Deduction for spousal transfers

Question 29

Gift Tax Return:

When are gift tax returns due?

Answer 29

• Due by April 15^th of the following tax year
  
  • In case of year of death:
    
    • Due the earlier of the regular due date or the estate tax due date

Question 30

Computing Gift Tax:

Identify the tax rate used to compute gift tax

Answer 30

• 18% rate up to $10,000
• rate increases over numerous brackets

Question 31

Computing Gift Tax:

What is the maximum rate on cumulative gifts?

Answer 31

40% on cumulative gifts in excess of $1 million

Question 32

Computing Gift Tax:

What type of tax rates are used in computing gift taxes?

Answer 32

Unified tax rates

Question 33

Computing Gift Tax:

How is tentative gift tax impacted by the product of prior years’ taxable gifts and the CY rates?

Answer 33

• reduced by the product of prior years’ taxable gifts and the CY rates

Question 34

Computing Gift Tax:

How does ACA or Applicable Credit Amount impact tentative tax?

Answer 34

reduces tentative tax

Question 35

Computing Gift Tax:

What is the applicable credit amount for 2016?

Answer 35

$2,125,800 for 2016

Question 36

Computing Gift Tax:

What is the exclusion for ACA deductions reduced by amounts allowable as credits for all preceding tax years?

Answer 36

• Excludes the 1^st $5.45 million of taxable gifts