Re: Gift taxes

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Gift taxes
Date: Wed, 29 Jul 1998 20:09:10 -0400

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The site you were reading has things worded very badly.  The way
it works is this...

Assuming you're still alive and have never gifted more than $10,000
in one year to any one person, you are the proud owner of a $202,050
unified gift/estate tax credit.

A summary of the rule is:
(1) Each tax year you have to add up all the gifts you gave to everyone,
  figure out the gift tax on that amount, and use the unified credit to
  offset the tax.  If the credit is used up, you have to pay the tax.
  The $202,050 unified credit is enough to shelter $625,000 of taxable
  gifts from tax.
(2) HOWEVER, you exclude from the calculation calendar year gifts of $10,000
  or less (this is indexed to inflation starting in 1999) of a present
  interest to any one person.  So if you gave $5,000 to Joe and $10,000
  to Jane, and $25,000 to Billy, the $5,000 and the $10,000 get excluded,
  as does the first $10,000 of the $25,000, leaving you with $15,000 in
  taxable gifts for the year.  If you have made taxable gifts, you have
  to file a gift tax return, even if there's actually no tax to pay.
(3) When you die, your executor figures out the taxable portion of the 
  estate and computes the tax on that.  If your remaining credit covers
  the tax, there's nothing to pay.  If it doesn't, then estate tax is due.
  
Because of the $10,000 per year per recipient exclusion, most people
never have to file a gift tax return and never have their unified
credit reduced during life.  So when they die, the full credit is
available and will offset the tax on the first $625,000 of taxable
estate.

I note that in reality (3) is somewhat more complex.  You actually do
something like adding back to the estate for tax purposes all the
taxable gifts ever made, but then using the entire credit.  It can be
very confusing.

If you're interested in more gory details, check out forms 706 and 709
and their instructions.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.1



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