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10 Cards in this Set
- Front
- Back
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Federal Income Tax - Gross Income
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Gross income= all income from whatever source derived; includes windfalls, noncash income, even income from illegal sources, alimony (payee has income, payor had deduction), prize and awards
-In addition, to be taxable, there must have been a realization (an accrual or receipt of cash, property or services, or a change in the form or nature of the investment that justifies imposing a tax) -Borrowing money doesn't give rise to income -Amount of noncash income is the fair market value of the property or services received |
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Federal Income Tax - Exclusions from Gross Income
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1. Life insurance
2. Inheritance 3. Gifts - "detached and disinterested generosity" 4. Recovery of damages 5. Improvements by lessee 6. Education expenses |
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Federal Income Tax - Deductions
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Adjusted gross income determined by deducting certain items from gross income
1. Business deductions - "ordinary and necessary" expenses incurred in carrying on a trade 2. Vacation homes 3. Moving expenses 4. Student loan interest payments 5. Taxes 6. Charitable contributions 7. Medical expenses |
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Gift and Estate Taxes
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General exclusions to gift and estate taxes are for transfers to spouses and charitable donations to a recognized charitable organization
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Federal Gift Tax
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applies to any completed, irrevocable transfer of property for less than full and adequate consideration in money or money's worth; donor is entitled to exclude the first $13,000 of the total gifts made during any calendar year to each donee; exemption is available to shield the first $1 million in taxable gifts made during the donor's lifetime
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Federal Estate Tax
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Applies to decedent's gross estate, which must include the value of all property to the extent to the decedent's interest at the time of death; once the value of a decedent's estate has been determined, the estate tax can be computed; value of the estate is first reduced by the estate tax exemption ($3.5 million through 2009); estate tax exemption itself is reduced by any lifetime gift tax exemption that has been claimed; if the value of the estate exceeds the remaining exemption, tax is computed under unified rates
Under estate tax apportionment statute, estate taxes are apportioned on a pro rata basis among all persons beneficially interested in an estate, including beneficiaries of nonprobate transfers; however, dispositions that qualify for a charitable deduction are not subject to apportionment |
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Generation skipping transfer
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all gifts or testamentary transfers of property to unrelated persons 37 1/2 years younger than transferor, or, in the case of family members, two generations removed, are generation skipping transfers as to which a generation skipping tax may be imposed
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Disclaiming
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Heir refused to accept certain assets, which then go as provided by state law; by disclaiming, the spouse can, for example, keep the house, car and savings account but refuse to accept the stock and jewelry; these items go as the will directs; valid disclaimer must meet state and federal requirements, including:
-heir must disclaim before accepting the bequest benefits -heir cannot control to whom the bequest will go -disclaimer must be in writing and generally must be signed within 9 months after the decedent's death -disclaimer must be irrevocable |
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Uniform Transfers to Minors Act
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Provides a mechanism under which gifts can be made to a minor without requiring the presence of an appointed guardian for the minor and which satisfies the IRS requirements for qualifying a gift of up to $12,000 for exclusion from the estate tax; Act allows donor of the gift to transfer title to a custodian who will manage and invest the property until the minor reaches 21 years of age; in the interim, the custodian can also make payments for the benefit of the minor out of the corpus of the gift
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Trust-Related Tax Issues
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Income that is distributed on a trust is taxed to the income beneficiaries; likewise, the amounts allocated to principal are taxed to the trust; also, when the guarantor retains a reversion in the trust, he will be treated as the owner of the trust unless:
1. reversion is minimal 2. reversion takes effect only on the death of a minor lineal descendant prior to reaching age 21 |
