Gift Tax

What is the Gift Tax?
Here we focus on the Gift Tax for 2015. This pertains to the Federal Gift Tax collected by the Internal Revenue Service (IRS.).
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The IRS definition of the Gift Tax is as follows: It is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return.
Stamp Duty Tax 2015

It qualifies even if it is a gift or not. The regulations further state that the Gift Tax is any transfer to an individual, directly or indirectly where full consideration (measured in money or money’s worth) is not received in return.gifttax

How the Gift Tax Works
First off, the Donor pays the Gift Tax. Outright money transfers or money assets such as stocks and bonds are relatively easy to transfer. If it is a money transfer, then the full amount of the transfer is the amount on which you would pay the gift tax, subject to certain exclusions or deductions. For stocks or bonds the tax is based on the value of the stock or bond on the date of transfer. This is called the Basis. The Basis is important for the recipient in this way. If you receive a gift of a $10.00 stock and later sell it for $100.00, you are subject to capital gains taxes for $90.00 on each share.Stamp Duty Tax 2015

Here are the IRS guidelines for filing your gift tax return:

Who Must File
In general. If you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) in the following situations.
If you gave gifts to someone in 2014 totalling more than $14,000 (other than to your spouse), you probably must file Form 709.

How To Complete Form 709
Determine whether you are required to file Form 709.
Determine what gifts you must report.
Decide whether you and your spouse, if any, will elect to split gifts for the year.
Complete lines 1 through 19 of Part 1—General Information.
List each gift on Part 1, 2, or 3 of Schedule A, as appropriate.
Complete Schedules B, C, and D, as applicable.

If the gift was listed on Part 2 or 3 of Schedule A, complete the necessary portions of Schedule D.
Complete Schedule A, Part 4.
Complete Part 2—Tax Computation.
Sign and date the return.

Exclusions
The annual exclusion for gifts is $11,000 (2004-2005), $12,000 (2006-2008), $13,000 ( 2009-2012) and $14,000 (2013-2015).
The applicable exclusion amount is increased to $5,000,000 for estates of decedents dying on or after December 31, 2009.
The applicable exclusion amount for gifts is $1,000,000 (2010), $5,000,000 (2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), and $5,430,000 (2015). (www.irs.gov)

Gifts not taxable are as follows:

  • Gifts to your spouse. Included here are gifts to same sex married couples. Civil Unions or Domestic Unions do not qualify.
  • Gifts for education. These must be for tuition only. It does not include books, supplies or living expenses.
  • Gifts for medical expenses. They must be paid directly to the medical facility.
  • Gifts to political organization for use.
  • Gifts to certain charitable organizations.

For other items such as property, art works, jewelry, etc. the transfer is more complex. You will first need an appraisal. This will establish the Fair Market Value. Fair Market Value is considered to be that between a willing buyer and seller, both of whom have knowledge as to the item’s worth.

This becomes important in the settlement of estates where some member of the family wants to sell an asset at a forced sale. This is not considered Fair Market Value. Some items may require documentation. Rare coins would fall in this category. You will need an attorney and tax accountant to help you with establishing the item’s value.

Large estates often use the Unified Credit Option. You may have given a gift and paid taxes on it. When the estate is settled the gift will be added back to your estate. The estate value is recalculated with the amount of taxes you paid credited to your estate.

IRS Tax Brackets for 2015 are as follows:
2014 Tax Brackets (for taxes due April 15, 2015)
Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household Tax rate:

10% Single filers: Up to $9,075 Married filing jointly or qualifying widow/widower: Up to $18,150 Married filing separately: Up to $9,075 Head of household: Up to $12,950 Tax rate:

15% Single filers: $9,076 to $36,900 Married filing jointly or qualifying widow/widower: $18,151 to $73,800 Married filing separately: $9,076 to $36,900 Head of household: $12,951 to $49,400 Tax rate:

25% Single filers: $36,901 to $89,350 Married filing jointly or qualifying widow/widower: $73,801 to $148,850 Married filing separately: $36,901 to $74,425 Head of household: $49,401 to $127,550 Tax rate:

28% Single filers: $89,351 to $186,350 Married filing jointly or qualifying widow/widower: $148,851 to $226,850 Married filing separately: $74,426 to $113,425 Head of household: $127,551 to $206,600 Tax rate:

33% Single filers: $186,351 to $405,100 Married filing jointly or qualifying widow/widower: $226,851 to $405,100 Married filing separately: $113,426 to $202,550 Head of household: $206,601 to $405,100 Tax rate:

35% Single filers: $405,101 to $406,750 Married filing jointly or qualifying widow/widower: $405,101 to $457,600 Married filing separately: $202,551 to $228,800 Head of household: $405,101 to $432,200 Tax rate:

39.6% Single filers: $406,751 or more Married filing jointly or qualifying widow/widower: $457,601 or more Married filing separately: $228,801 or more Head of household: $432,201 or more