Donee
recipient of gift does not include the amount of the gift in his/her gross income and thus is not subject to income tax
Donor
giver of gift may be subject to the gift tax regime
Gifts
excluded from income for federal income tax but may be subject to federal gift tax
Taxable Gift
the gift is in excess of the annual exclusion of $14,000
Gift tax rate
applies to the donor on a taxable gift as high as 40%
Gift Tax Exclusions
Annual Exclusion
Lifetime Exclusion
Annual Exclusion
-A donor is allowed a gift tax exclusion of up to $14,000 per donee per year (subject to inflation by $1,000 increments)
-Married individuals may elect to split gift (treating a gift from one individual as coming from both individuals) for an exclusion of
Unlimited Marital Deduction
gifts made to spouses are not subject to the gift tax
Lifetime Exclusion
taxpayer can elect to use all or any portion of $5,450,000 amount during his/her lifetime by making taxable gifts and then electing for those gifts not to be taxed
Estate
When an individual dies, that person's estate automatically steps into existence and owns the person's property
Estate Tax
levied on the value of property an individual owns at death
Estate Tax parties
Executor-manages the estate and is responsible to determine the value of all the assets the decedent owned
Decedent-person who died
Gross Estate
the value of the assets in the estate, reduced by allowable deductions such as funeral expenses, liabilities of the decedent, and gifts to charity
Generation Skipping Tax
prevents taxpayers from avoiding potential gift and estate taxes at each generation by making transfers to grandchildren as opposed to being passed first to the decedent's children, then to the grandchildren
Payroll Taxes
Employers must withhold:
-federal tax
-SS tax
-medicare tax
(Employer required to match the amount of SS and Medicare taxes withheld)
Amount Employer withholds
6.2% of the first $118,500 of an employee's wages and also 1.45% of the employee's wages.
Pass-through Entities
earnings flow through the entity and are taxed to the owners
-partnerships
-LLC
-S Corporations
Check-the-Box Rules
IRS allows partnerships and LLCs to elect to be treated as C corporations by checking a box on an IRS form
Corporations not allowed to check-the-box to be treated as a partnership or LLC, and do not have the option to make an "S" election to be treated as
Trusts
set up by individuals to hold and manage assets
3 parties to a Trust
1.) Grantor-person putting property into a trust
2.) Trustee-manages the trust
3.) Beneficiary-receive income from the trust and/or property
Income of the trust is taxed for income purposes
-If the trust retains the income, the trust pays the income tax
-If the beneficiaries of the trust receive the income currently, the beneficiaries pay the income tax
(same for estates)
U.S Tax Jurisdiction
asserts jurisdiction to tax the worldwide income of its citizens and residents, may create double taxation when individuals earn money abroad
Mitigate potential Double Taxation
1. Foreign Tax Credit
2. Foreign Earned Income Exclusion- shields up to certain amount from taxation in the US if person chooses to exclude the income rather than utilize the FTC
3. Tax Treaties with foreign countries
Foreign Person
any person not a US person is taxed only on their US sourced income rather than on their worldwide income
Excise Tax
tax on provision of certain services (tanning beds) or tax on a transaction involving a particular item (alcohol)
Multi-state Business
may be taxed twice on the same income so solved by apportioning business income among the states in which the business is subject to taxes
Nexus
taxpayer is subject to taxation in a state only when the taxpayer has sufficient (connections) with the state
General Rule
taxpayer has nexus with a state when the taxpayer has established a nontrivial physical presence in the state