Estate & Gift Taxation

Gift Taxes

For tax purposes, a payment is a gift if it is made without conditions and the giver does not expect an economic benefit/consideration. A gift tax return is required to be filed if a donor has made a single gift over $12,000 to an individual or several gifts to an individual totaling over $12,000 annually or if a gift to a non-citizen (permanent resident) spouse exceeds $125,000. If a donor is neither a U.S. citizen or permanent resident, then the gift tax will apply only to transfers of property located in the U.S.A. A gift of more than $100,000 received from a foreign individual is subject to the gift tax reporting requirements. Gift tax returns are due annually by April 15 and they are subject to the same interest and penalties for failure to file and pay taxes as other tax returns. Filing a gift tax return and payment of the tax due are the responsibility and liability of the donor.

The following gifts are not reportable on the gift tax return.

	Gifts to charitable organizations
	Medical and education expenses paid directly to the providers on behalf of an individual
	Political contributions

Gift tax returns should be held indefinitely because the value of the gifts stated therein would have to be used to prepare the estate tax returns when the donor dies.

Estate Taxation

For tax purposes, the estate of a decedent can be defined as the aggregate interest a decedent has in real and personal property in the U.S.A. and other countries on the date of death. The appraised/fair market value of property that a decedent owns on the date of death is subject to estate taxes as it passes on to survivors (IRC section 1014). This is called the gross estate. A taxable estate is the gross estate reduced by the amount of deductible funeral and administrative expenses, claims and charges against the estate, casualty losses, charitable bequests, and bequests to the surviving spouse. You can pay the funeral expenses on behalf of a decedent and file a claim to recoup your money from the estate. If the deceased had died broke, then you are out of luck. You cannot take a tax deduction on your personal tax return for funeral expenses that you paid on behalf of a decedent.

An estate tax return must be filed within nine months after the death of the decedent. The executor/administrator of the estate as defined in section 2203 has a non-delegable duty to file the tax returns on time. Section 2002 makes the executor fully responsible for paying the estate tax and it does not matter if the executor must use his/her own funds to pay the tax. Section 6651(a)(1) imposes a minimum penalty of 5% and a maximum aggregate penalty of 25% for each month that the tax is in arrears unless failure to pay on time was due to reasonable cause.

Testimonial

"I experienced the sudden loss of my mom in 2005. My attorney referred me to an accountant who prepared the estate tax returns. Three years later, I was informed by New York State that the returns were incomplete. I took my documents to Barry's Accounting Services and I was very happy with the results. Thanks Barry."
           - Shaun Frederick

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