Taxation of Insurance

Question 1

What are Gift Tax Law benefits?

Answer 1

gift-splitting privileges, deductions, gift of life insurance, gift of insurance contracts, gift of premiums, and gift of proceeds

Question 2

What is gross estate?

Answer 2

total of the decedent’s interest in all property owned and is the starting point for estate tax computation

Question 3

What is the adjusted gross estate?

Answer 3

gross estate value minus funeral and administrative expenses, debts and taxes, and casualty losses. From the adjusted gross estate the decedent’s marital deduction, charitable deduction, and state death tax deduction are applied to determine the tentative estate tax.

Question 4

How are LTC insurance benefits, premiums and out of pocket spending taxed?

Answer 4

Benefits are excluded, premiums and out of pocket spending for LTC services qualify as medical expense deductions, 100% up to specified age limits

Question 5

What’s the difference between estate and gift tax?

Answer 5

Estate tax is applicable when owner dies, as opposed to transfers during lifetime

Question 6

Items that can be included in death proceeds.

Answer 6

The policy face amount
Accidental death benefits
The face amount of any paid-in-full additional insurance
The face amount of a term rider

Question 7

Stan, age 50, maintains a single-coverage High Deductible Health Plan (HDHP) and a Health Savings Account (HSA). The earnings this year in the HSA are $5,000. He is in a 22% federal marginal tax bracket. This year, he incurs $10,000 of qualified medical expenses but distributes $12,000 from his HSA. What amount of federal taxes will Stan pay for this year’s HSA distribution?

Answer 7

Distribution not used for qualified medical expenses are subject to ordinary income tax plus a 20% penalty tax.

42% x $2,000 = $840