2011 Q4 Estate and Gift Tax

2011 Q4 Estate and Gift Tax

 ❖The federal and estate gift tax exemptions are each set at $5 million for 2011 and 2012.  ❖This year, the federal gift tax exclusion is $13,000. Excess gifts have gift tax consequences.  ❖Suppose that Marge Jones, a widow, gives $300,000 to her daughter in 2011. The first $13,000 is covered by the annual exclusion.  ❖The remaining $287,000 reduces Marge’s estate tax exemption.  ❖Assume that Marge dies in 2012 and has made no other gifts over the annual exclusion amount.  ❖In this scenario, Marge’s estate would have an estate tax exemption of $4,713,000: $5,000,000 minus $287,000.    

2011 Q3 | Adjusting for the AMT

2011 Q3 | Adjusting for the AMT

Many taxpayers owe the alternative minimum tax (AMT) rather than the regular income tax. Officially, the AMT has two tax rates: 26% and 28%, depending on your income. The AMT also has an exemption amount that phases out with AMT income over $112,500 (over $150,000 on a joint return). As the AMT exemption phases out, your tax rate actually might be 32.5% or 35%. Thus, some taxpayers who pay the AMT will owe as much as 35 cents in tax for every extra dollar of income they report, as opposed to the “official” 26 or 28 cents on the dollar. The higher the AMT rate, the greater the benefit of deferring tax with a traditional 401 (k).

2011 Q3 | Tax-Free Savings Bonds

2011 Q3 | Tax-Free Savings Bonds

The interest from savings bonds you cash in may be tax-free. That can be the case if you use the money for college tuition and fees. Several conditions apply. For example, you must have been at least age 24 when you bought th bonds. Either you or your spouse must own the savings bonds. The bond proceeds may be used for the owner’s education, the owner’s spouse’s education, or the education of a dependent for whom the owner claims an income tax exemption. Income limits exist for this tax benefit. For completely tax-free income, your modified adjusted gross income (MAGI) in 2011 must be no more than $106,650 on a joint tax return or $71,100 on other returns. The tax

2011 Q3 | Voluntary Disclosure for State Taxes

2011 Q3 | Voluntary Disclosure for State Taxes

Companies may discover that they had nexus in a given state and, thus, owe back taxes. Most states allow voluntary disclosure agreements (VDAs). These agreements call for the company to submit delinquent tax returns and pay the required taxes. Typically, a VDA will limit the lookback period to three or four years. No penalties will be assessed if the company pays taxes in full for those years.

2011 Q2 | Income Shifting

2011 Q2 | Income Shifting

The annual gift tax exclusion for 2011 is $13.000. A middle-aged man could give his retired parents up to $26,000 of appreciated securities with no gift tax consequences. If he is married, the man and his wife could give up to $52,000 of appreciated securities to his parents and another $52,000 to her parents this year. The parents in this scenario would retain the original investor’s basis (cost for tax purposes) of the appreciated securities, if they are sold for a gain, and the original investor’s holding period. The new owners would have along-term gain on a sale of appreciated assets held more than one year. As long as the retired couple’s taxable income remains under $69,000 this year, the

2011 Q2 | Capital Gains, Not Ordinary Income

2011 Q2 | Capital Gains, Not Ordinary Income

Tax-exempt bonds that were purchased with a market discount before May 1, 1993, are not treated as market discount bonds. Any gain on the sale of such bonds is treated as capital gain. For example, suppose you bought tax-exempt bonds that were issued with a $10,000 par value. Before May 1, 1993, you paid $9,000 for those bonds. If you sell the bonds now for $9,500, you’ll have a $500 long-term capital gain. A similar example using tax-exempt bonds bought after April 30, 1993, would result in $500 of ordinary income taxed at higher rates.