Estate and Gift Tax Flashcards
What tax exists so wealthy people don’t give away all their assets while alive in efforts to try to avoid the Estate Tax?
Gift tax laws
What is the amount of the Unified Credit?
What does it do?
$11,500,000
It means that a person can have that amount and not pay any estate tax upon death.
If someone begins giving money away while still alive, what form do they need to fill out?
Form 709, Gift Tax Return
Gift may be subject to the gift tax unless someone chooses to use the Unified Credit.
What is the amount that a person is allowed to give away to a person per year to avoid paying gift tax?
$15,000 single
$30,000 MFJ
DO you have to file a gift tax return for a gift of $15,000 or less?
NO
Not all payments to others are considered gifts. What are some exceptions?
- Payments to minor family members
- Payments to an employee that is in reality compensation
- Property settlements in a divorce
- Child support payments
- Payments for political contributions
- Donations of time
Besides giving money, what are some other things that can be considered a gift?
- Loan @ below market rates
- Debt forgiveness
- Sales @ below market prices
- Placing assets in irrevocable trust
Is a revocable trust considered a gift?
No because the person can revoke it at any time.
Are donations of personal services considered a gift
No
Are gifts between spouses considered a gift?
No
Are gifts to a charity considered a gift for gift tax purposes?
No
Exam tip! If given a question and asked the “taxable amount” of gift, what should you remember?
Do not include full amount of each gift, remember to reduce each by $15,000 exclusion per person.
In what cases are gifts unlimited?
- Gifts between spouses
- Gifts to charities
- Gifts given directly to the provider of medical care / provider of education (can’t give to the person first!)
What is the estate tax return form called?
Form 1041
Any income received after the date of death should be declared on where? Paid by who?
Declared on Form 1041, tax should be paid by the estate
If someone who dies had an insurance policy to be paid out to others, would this be included on the 706?
Yes, it would be included on the 706 to determine if the person has over $11.5M in total assets for purposes of measuring the estate.
$13,000 in medical expenses. Death July. Bill in August, person never paid. Estate paid.
Filed on final 1040 or 1041?
Deduction on the 1040. Waiver has to be filed to elect that medical expenses will not be taken on Form 706. Only applies to MEDICAL. Must be paid within 1 year of date of death.
Deducting on Form 1041 is NOT an option.
Jack earned income before death, not yet collected. Income transferred to sister.
Sister collected $4,000 in the following year.
Where does this income get reported?
On sister’s 1040 as income because she is the beneficiary.
If it had been collected by Jack’s executor it would have gone on the 1041.
Jack sells a tractor on 5/20/2018 for $3,000, basis $2,000.
The $3,000 was payable 7/8/2018.
Jack died 6/1/2018 (before receiving payment.
$3,000 is received by executor on 7/8/2018.
Who reports income?
The $1,000 gain on sale should be reported on Form 1041.
Jack was entitled to $50,000 consulting fee at date of death.
Payments due as follows:
2/8/2018 - $10,000 (Jack)
9/1/2018 - $10,000 (Executor)
Remaining 3 - Transferred to Kay (sister)
How to report?
2/8/2018 - Jack’s final Form 1040
9/1/2018 - Estate Form 1041
Remaining 3 - Kay’s 1040 in year collected
Jack receives a check for unused vacation on 5/11/2018.
Jack dies 6/1/2018, executor cashed check on 8/4/2018.
How is the income reported?
Earned before death, goes on Jack’s final 1040.
Jack incurred business expenses in 5/2018.
Died 6/1/2018.
Expenses paid by executor on 7/8/2018.
How is income reported?
This would be reported on 1041 (estate).
Items such as business expense, taxes, income producing expenses for which the decedent was liable at death but NOT PAID before death, deducted on 1041. (Schedule C)
Jack was a stockholder, dividend declared on 4/18/2018 to stockholders on record 5/2018. Payable 6/18/2018
Date of death 6/1/2018.
How does income get reported?
Any dividends declared BEFORE DEATH BUT NOT RECEIVED are included on the 1041.
Jack was a stockholder.
Dividend paid 5/28/2018.
Jack had not cashed the check at time of death 6/1/2018.
How does this income get reported?
On Jack’s final 1040 because income RECEIVED BEFORE DEATH.
