Stevens gift tax liability for 2013 - Assignment Example

Question Part Steven’s gift tax liability for Gifts given: Fur Coat to Allie = $10,000 (less than annual exclusion of $14,000) Car to Bobby = $18,000 = 18000 – 14000 = $4,000 (taxable) Cash to Carla = $20,000 = 20000 – 14000 = $6,000 (taxable) Total gift tax liability = 6000 + 4000 = $10,000 Lifetime gift tax exemption = $5,250,000 Less gift tax due = 5250000 – 10000 = $5,240,000 Steven’s gift tax liability amounts to $10,000; however, this amount is offset by the lifetime gift exemption (Hoffman, Raabe and James 847).

In this case, Steven is not subject to any gift taxes in 2013, but reduces his lifetime gift exemption by $10,000. Part 2: Advice on how Steven could have minimized his gift tax for 2013 The gifts made to Bobby and Carla both accrued gift tax liability. Since Allie’s gift was valued less than $14,000, it did not accrue any taxes. Carla and Bobby’s gifts accrued a tax liability of $10,000. On a personal opinion, Steven could have minimized or eliminated this gift tax liability by considering, giving the gift as joint property with his wife.

The IRS considers gifts given by couples jointly, to be divided into half of the total value of the gift, such that each individual ends up giving half (Herisgad). From this point, each half is dealt with individually, subject to gift tax guidelines. If Steven, had given the car to Bobby jointly with his wife then it would have been total value $18,000 divided by two from each thus from Father $9,000 and Mother $9,000 of which both amounts do not reach the annual exclusion of $14,000 or $28,000 if put together.

Same with Carla, the $20,000 gift if given jointly it will be subject to a $28,000 exclusion thus not tax liability. Part 3: The basis of any property that you believe Steven gifted Steven gifted his son Bobby with a car that was worth $18,000. This is considered a taxable gift following reasons. First, Steven did not give it to his spouse. Second, he did not contribute the car to a political organization or for charity use. Third, it was not used to fund tuition or medical expenses and lastly it surpassed the year exclusion limit thus making it liable for gift tax (IRS).

Part 4: The gifts made in 2014 if any. In addition, if Steven dies within three years of the creation of the trust, are there any estate tax consequences to Steven’s estate. In 2014 Steven did not make any taxable gifts, this is because he did not give out any item or cash that exceeded the yearly exclusion of $14,000 nor did he give out any item without expecting goods or services, thus no gifts were made. If Steven dies within the first three years after setting up the trust, the following tax consequences will apply.

The estate tax will take effect on his death and income tax will be deducted on any income that will be earned by the trust. Further, there will be no transfer taxes upon distribution of trust income and corpus (Hoffman, Raabe and James 882). Part 5: With regard to Steven’s gift tax audit, does Steven have any defenses to protect himself against the audit? Yes, Steven does have the defense to protect himself against the audit. Steven’s gift records indicate he has documented all his gift transfers except for the help he offered his brother.

Steven can justify his actions by declaring that his contributions to his brother’s welfare were charitable. Steven can also defend himself on the overvaluation of the fur coat and undervaluation of the car gift to Bobby. To offer him further assistance, I would request for written records of his contribution to his brother’s welfare. In addition, Steven will also need to present the income records of the trust he created. Question 2 On the first decision, Kanye should not make money transfer to soon to be wife, rather my recommendation would be for him to wait until they are married after which he will be able to transfer the money without any tax consequences.

In their current situation, Kanye is not legally married to Kim therefore; any gift transferred between them is subject to being taxed. The IRS only exempts gift tax for legally married couples (Plante Moran Trust 4). Kanye’s decision on creating an irrevocable trust for his daughter is a great idea, since this has a positive impact in terms of tax consequences. With the irrevocable trust, Kanye reduces his taxable estate hence providing assets to his daughter without being subject to taxable estate in case of death (Helsell Fatterman).

I would recommend he continue with the plan. The third decision on life insurance may cause unfavorable tax consequences for his beneficiaries. If the life insurance is left in the name of his estate, his beneficiaries may experience difficult after his death since the insurance will only be available once the probate process is finished which is a time consuming and costly process (Hoffman, Raabe and James 878). I would recommend he rather name direct beneficiaries of the life insurance rather than his estate.

In this case, the beneficiaries will benefit from the insurance immediately after his death. The fourth decision on joint tenancy has adverse effects on both estate tax consequences and gift tax consequences. The first consequence is on estate tax, whereby if couples hold joint tenancy, then they are will not be able to maintain both federal tax exemptions. Second, if the joint tenancy is terminated, it will result in a taxable gift if the proceeds from sale are not equally distributed (Samson).

My recommendation would be for Kanye, to maintain the home as family home with his descendants as beneficiaries. The last decision to contribute after death annuity to a trust for a private foundation charity, will result in a federal gift tax deduction in accordance to section 2522 (Hoffman, Raabe and James 874). References Helsell Fatterman. Irrevocable Trusts. 2013. Web. 19 December 2013. Herisgad, Sally. Gift Tax: Do I have to pay gift tax when someone gives me money? 10 November 2013. Web.

23 December 2013. Hoffman, William, et al. Corporations, partnerships, estates and trusts. Mason, OH.: South-Western Cengage Learning, 2013. Text. IRS. Eight Tips to Determine if your Gift is Taxable. 30 March 2012. Web. 22 December 2013. Plante Moran Trust. "Guide to Federal Estate and Trust Tax Return Requirements." n.d. PMTrust. Document. 20 December 2013. Samson, Steven. Holding Property in Joint Tenancy Creates more Problems than it Solves. 2011. Web. 19 December 2013.