Sweep bchad and greenie all give itera’s kid 14k. Everybody gives sweep’s kid 14k and so on. The gift exemption becomes an unlimited estate tax exemption. Magic. Might want to check with the IRS first, but they only give answers post facto.
I’m not a tax attorney, but I’m pretty sure the step transaction doctrine would apply and they would be viewed as indirect gifts.
I thought I read somewhere that you don’t actually have to pay taxes on gifts but it counts towards your estate when you die. For example, let’s say throughout my life (and my wife’s) we give $2mm to whoever we want. Then, assuming death taxes start at $5mm (I didn’t bother looking up the exact number), death taxes kick in on anything I leave over $3mm.
This came up in some complicated divorce I read about. The husband owned a company and was gifting shares to his son but not paying taxes on it. It was apparently legal but the amount gifted counted toward his future possible estate taxes.
Yes, it’s called the gift tax exclusion.
Gift taxes and estate taxes are the same thing. You get a $5.5m annual exclusion ($11m if you’re married). Everything over that is subject to tax.
So if Sweep were generous enough to give me $100k, then only $72 of that is taxable. (Sweep gives me $14k and his wife gives me $14k, because we always assume that they’re splitting the gift.) However, you still have to fill out a 709 (a gift tax return) and the amount that is excluded from your estate is now $5,428,000. ($5.5m less the $72k.)
(FTR - the exclusion isn’t exactly $5.5m, but it’s good enough for AF. No offense or nothing.)
^ Come on Greenie, you can’t throw in the extra “4” to give us $5.45MM lifetime exemption?
^So, if I give $5.4mm over the course of my life and fill out the gift tax exclusion forms, then leave nothing when I die, do I avoid gift taxes all together?
Edit: Let’s assume I’ve accounted for the one-time gift allowances and the $14k a year
The other interesting thing is that it is the giver who pays tax on the gifts, not the receiver, which seems a bit odd because the receiver is the one effectively getting income and the giver may have already paid tax on wherever that money came from and is now paying more tax to give it to someone else.
But I suppose they figured that the one giving the money is more likely to be in a position to pay the tax than the one receiving it (who may be getting bailed out by the giver and not have anything). In addition, there is the likelihood that the giver is in a higher tax bracket than the receiver.
I don’t know the exact dollar amount. I know it’s somewhere around there.
That’s what software is for.
^ It’s currently $5.45MM. Was $5.43MM until last fall.
That’s correct. There’s nothing left in your estate, so you owe nothing.
You can always give somebody money and make them pay taxes on it. It’s called “rent” or “nonemployee compensation” or something.
Interesting. So you can say the gift is income and reverse the side that owes taxes. I guess few people do this, due to the estate and exemption rules…
Estate tax is such b.s.
Okay, so I win the thread. I can give $5.45mm divided by my life expectancy (~3.5 years at the moment).
Gifting before death foregoes the basis step-up. Beware.