What Do I.Get Taxed When I Sell My Stock Shares Federal Gift Tax – When This Tax Has to Be Paid

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Federal Gift Tax – When This Tax Has to Be Paid

Definition of gift

The IRS defines a gift as “the transfer of property (including money), use or income from property without the expectation of receiving something of at least equal value in return. Gift tax applies whether or not the donor intends the transfer to be a gift.” In other words, if you make a transfer for which you receive nothing or less than the fair market value of the property in return, it is a gift. If you sell your home to a relative for less than market value, the difference will be a gift. A promise to make a gift is not enough, the gift must be made voluntarily. The gift must be delivered and accepted without the ability to revoke it and be a present interest (you no longer retain control of the property). The date of the gift transaction is considered the date of transfer of title in the case of cash when the check is cashed. Taxable gifts are reported using IRS Form 709, where a running count is made that is used against your single federal lifetime gift and estate tax exemption (amounts are cumulative). When a gift is taxable, the tax is paid by the donor, not the recipient. A file with Forms 709 should be kept for life.

Tax-free gifts

A) The annual gift tax exclusion is $14,000 for 2014. This is the amount that a person can transfer, free of gift tax and without affecting his/her lifetime exemption, to as many individuals as he or she wishes. A married couple can double the amount. For example, a married couple can gift $28,000 to any of their children; if the child is married, they can gift $28,000 to their child (splitting gifts) and to their spouse (a total of $56,000 in cash or fair market value property).

B) Tuition if you pay it directly to the school (no other incidentals)

C) Medical expenses that you pay directly

D) Gifts to your spouse (if your spouse is a US citizen)

E) Gifts to a political organization for its use

F) Gifts to qualifying charities unless it is a fractional interest (this can be very difficult if trusts are involved)

The only 2014 estate/gift tax exemption

Gift and estate taxes have a uniform federal lifetime gift and estate tax exemption of $5.34 million per individual for 2014 ($10.68 million for a married couple); is the total amount of taxable gifts and property that is subject to tax and can be transferred without paying gift or estate tax. A taxable gift is not taxed above (for example, an excess gift from one person to another over $14,000 per year is a taxable gift). A surviving spouse can add any unused most recently deceased spouse exclusion to theirs, allowing up to $10.68 million to be transferred tax-free if an estate tax return is filed on the decedent’s behalf with this election. Gifts made during life will reduce the exemption from the single estate tax that is taxable at death. If you exceed the limit, you will be liable for tax of up to 40% of the excess. Gift tax applies to lifetime taxable gifts; estate tax applies to property left at death. Gifts are generally valued at cost, while real estate is valued at fair market value at the date of death.

Gift strategies

Gifts made during your lifetime will reduce your taxable estate, if you gift property before you die your estate will not be worth as much. This can be especially important if you are gifting property that will increase in value, such as stock or business interests, art/collectibles, etc. At the same time, gifts in excess of $14,000 per year reduce the estate tax exemption (they are unified as noted above). For example, if a married couple gift $250,000 in cash to one child over ten years, their estate will be worth $2.5 million less and their single exemption will drop from $10.68 to $8.18 million.

As an example, if the stock has a total market value of $250,000, but was originally purchased for $100,000 (based on cost), the value of the gift is $100,000. The stock at the time of the parent’s death can be worth many times more than $250,000, so if the transfer was not made, it would increase the value of the estate and possibly the estate tax as the estate receives a “step-up” in basis to fair market value value at time of death. Therefore, gifting an appreciating asset shields the gain from estate tax. If the recipient then sold the shares in the example, they would pay capital gains tax; also the cost basis will include any gift taxes paid on the transfer. Certain valuation discounts may apply to share/membership value for closely held companies such as FLP due to lack of liquidity. You should obtain a professional appraisal when transferring any asset that is not cash or public securities, especially if it is an asset that is difficult to value, such as real estate or an interest in a family business. .

A Family Limited Partnership (FLP) can be an effective way to manage and control family assets while ensuring a taxable transfer of wealth to others. Parents donate most of the partnership interest to family members in the form of a limited liability company interest. Limited partners do not manage the partnership, and the operating agreement may specify restrictions on selling or borrowing against their partnership interests.

Another use of the annual exclusion is to invest in Section 529 college savings plans, setting up a separate account for each family member you want to take advantage of.

Pay tuition and medical expenses without treating the payment as a taxable gift to the student or patient as long as the payment is made directly to the school or provider

Talk to an estate and gift tax attorney about the various irrevocable trusts you can make on behalf of beneficiaries, such as a retained annuity trust (GRAT), an irrevocable life insurance trust.

Crummey Notifications

Typically, the annual exclusion is used to fund a trust, such as an irrevocable life insurance trust. By doing this, beneficiaries receive a “Crummey power,” which is the right to withdraw from the trust an annual gift that belongs to that beneficiary within 30 or 60 days. A Crummey Notice must be sent each year to beneficiaries informing them of their right to withdraw their portion of the annual gift to the foundation. The IRS can and will request them during an audit.

State gift taxes

Many states have estate or inheritance taxes, and not all of them follow the federal estate tax system. This means that the state applies different tax rates or exemption amounts. The exemption amount for your state will vary. Consult a CPA or estate tax attorney about specific state laws and possible state estate or inheritance tax mitigation options.

Same-sex marriages

The IRS states that “for federal tax purposes, the terms “spouse,” “husband,” and “spouse” include persons of the same sex who have been legally married under the laws of a state that permits the marriage of two persons of the same sex. and who remain married. In addition, the Service will recognize a same-sex marriage that was validly entered into under the laws of the state where the celebration took place, even if the married couple resides in a state that does not recognize same-sex marriage. marriages”

Spouse who is not a US citizen

If your spouse is not a US citizen, you must file a gift return if your gifts to your spouse exceed $145,000 per year. Additional gifts to a noncitizen spouse count toward the $5.34 million lifetime exclusion and must be reported on Form 709. Certain large gifts or bequests from certain foreign individuals must be reported on Form 3520.

When to file Form 709

If you make gifts that exceed the annual exclusion limit, you must file Form 709, which is the US gift (and inheritance) tax return. The return must be filed by April 15 of the year after you make the gift, if your Form 1040 (Form 4868) is extended, the extension applies to your gift tax return (October 15). To request an automatic six-month extension to file Form 709 without an extension for Form 1040, you can file Form 8892. If gift tax is owed, it must be paid by April 15, interest may be assessed if not paid on time, and fines. Married couples cannot file a joint gift declaration. Each spouse files their own Form 709 for taxable gifts. The gifts can be “split” with your spouse, doubling the annual exclusion from $14,000 to $28,000 for either person.

The current federal gift/estate tax rate is 40%.

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