Estate Trust Taxation Flashcards
What is the annual exclusion amount for a taxpayer’s gift taxation? What is required to get the exclusion?
$17,000 per year per spouse to each individual
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
How is gift taxation different from estate taxation?
Property transferred while taxpayer is living
What is the basic gift tax calculation?
Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $17,000 exclusion
= Taxable gift
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
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?
Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)
Political contributions
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 @ gift date
What are the basic characteristics of complex trust?
Income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100
Key Point: Distribution of trust corpus (principal) ok
How/when are gift tax returns filed?
Calendar-year basis only
Due April 15
What are the basic characteristics of a Simple trust?
Income distributions mandatory
Accumulation of income disallowed
No charitable contributions
Distribution of trust corpus DISALLOWED
Allowed personal exemption of $300
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
What amount of a decedent’s Estate is exempt from Estate Tax?
The First $5,120,000 is exempt with a 35% tax on amount above that
When is property transferred in an estate?
After the death of the donor
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 decedent’s 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 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
Note: With joint tenancy, each person interest in the property is based on the original consideration paid %. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s original consideration paid %
What does a gross estate consist of?
Cash and Property FMV at death; or alternate valuation.
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 (or A’s estate)
Note: With tenancy in common, each person has an EQUAL interest in the property. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s interest (if A, B and C owned property, A’s interest would be 1/3rd ~ same would be for B and C)
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 (or A’s estate)
Note: With tenancy in common, each person has an EQUAL interest in the property. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s interest (if A, B and C owned property, A’s interest would be 1/3rd ~ same would be for B and C)
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 (UBI)?
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?
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
What organizations are exempt from filing a form 990?
The following organizations DO NOT have to file a Form 990:
- Churches
- Federal agencies
- Organizations whose gross receipts are less than $50K
- Private foundations - instead they file a Form 990 PF
How do you calculate the Overall Limitation for Foreign Tax Credit?
Overall limitation for foreign tax credit =
(Foreign taxable income / Worldwide taxable income) x U.S. Income tax
Note: If a problem say’s “tentative U.S income tax” it is the same as U.S. Income tax
So, foreign income taxes paid are available as a credit for the year to the extent of the formula above
How is estate tax handled with respect to a beneficiary?
Property received through inheritance not income to recipient
Property value is FMV at date of death or 6 months later
If property is sold prior to 6 month date and the alternative date is used; FMV at date of sale is used to value property
Basis in property automatically assumes LT holding period
How can foreign taxes paid use on a U.S return?
If there are any foreign taxes paid by a business, the tax payer can take either a deduction for foreign income taxes paid or a Credit
How far can an unused foreign tax credit be carried?
Unused foreign tax credits can be carried back 1 year and forward 10 years and used to the extent that the taxpayer is BELOW the limitation in those years
