Archive for the ‘Gift Tax’ Category
Not a lot of news the last couple of days so I’m going to double up.
I’m from the Detroit area and Bill Davidson, who passed away a few years ago, is a well known name in Detroit sports. Amongst other things, he owned the Detroit Pistons and I even interviewed for a job at his company, Guardian Glass, over a decade ago. It looks like his estate is being questioned and the IRS has sent out a $2 billion (yes, that’s a “b”) notice for estate and gift taxes due. Some of it is estate tax but they’re also questioning some past gifts that were made to heirs with valuations lower than what the IRS thinks.
While this article talks about farm equipment, it’s a Section 179 issue and it’s available to all businesses. Normally if you buy fixed assets, you have to depreciate them over their useful life. If you don’t buy a lot of assets, you have the option of immediately expensing them via Section 179. With bonus depreciation, this has been less of an issue but the amount a person can deduct is going to drop from $500,000 in 2013 all the way down to $25,000 if Congress doesn’t do anything about it. This is one of those things where every year or two, Congress bumps it up but makes the increase temporary. While not an extender (the law has been around for a long time), the amount has been the equivalent of an extender in that you never quite know what the amount is going to be until Congress acts. Also interestingly, I found a website that’s specifically dedicated to the Section 179 deduction with ticker and all.
Finally, we have an agreement between the US and the Cayman Islands to fight tax evasion. I wonder if there was a run on Cayman banks this week.
This question came up recently. I had a financial adviser ask me if a client could gift some appreciated stock to their child and receive a step up in basis. Unfortunately, you only get a step up in basis when it’s an estate situation. When you gift appreciated stock, both the holding period and the basis carry over. So if your parents bought stock back in 1980 for $1,000 and now it’s worth $100,000 your basis would be $1,000 but you’d get the 1980 holding period so it would be long term capital gain if you sold it. For gift tax purposes, the value of the gift would still be the fair market value, which in this case, would be $100,000.
Note that this is different than if you gift your shares to a charity. In that situation, there is no gain triggered but your charitable deduction is the full fair market value of the shares.
It’s the end of the year and you want to move some money to your kids for estate tax planning purposes. Or they just need a helping hand. What can you do and what can’t you do and when do you have to file a dreaded gift tax return? As always, these are general rules so be sure to talk to you adviser to discuss your personal situation.
Since 2009, the annual gift tax exemption has been $13,000. That means you can give anyone a gift of up to $13,000 in a calendar year without filing a gift tax return. Pretty straightforward but you can do even more if you’re married. Since you can technically say that your spouse gave the same amount, if you’re married you can give up to $26,000.
To take this a step further, if you’re married and you’re gifting to your child that’s part of a family of four, you could give $26,000 per person, or $104,000, all without needing to do a gift tax return.
You can give gifts to your spouse without any gift tax implications so that’s one of the exclusions. Also keep in mind, if you exceed the limit and have to file a return, you probably won’t have to pay tax because of the unified credit but once you start chewing into your unified credit, it could eventually affect how much your estate can shield from taxes.
For more information, be sure to check out Publication 950.