Are gifts taxed in the United States?
Gift tax in the United States
If a person is a non-resident alien for purposes of gift tax, taxation of gifts is determined in a different way. If the property is not located in the U.S., there is no gift tax. If it is intangible property, such as shares in U.S. corporations and interests in partnerships or LLCs, there is no gift tax.
Lobbying in the United States
Gifts for congresspersons and staffers can be problematic, since anything of sizeable value must be disclosed and generally such gifts are illegal. Failure to observe gift restrictions was one factor which caused lobbyist Jack Abramoff to eventually plead guilty to a "raft of federal corruption charges" and led to convictions for 20 lobbyists and public officials, including congressperson Bob Ney and Bush deputy interior secretary Stephen Griles. Generally gifts to congresspersons or their staffs or federal officials are not allowed, but with a few exceptions: books are permitted, provided that the inside cover is inscribed with the congressperson's name and the name of one's organization. Gifts under $5 are allowed. Another exception is awards, so it is permitted to give a congressperson a plaque thanking him or her for support on a given issue. Cash gifts payable by check can only be made to campaign committees, not to a candidate personally or to his or her staff; it is not permitted to give cash or stock.
Endowment tax
Non-profit donations (through non-profit social organizations or the people's government departments at the county level and donations for prescribed public welfare undertakings) that occur in an enterprise can be used to calculate the amount of taxable income within 12% of the total annual profit.
Individual donations for public welfare donations that don't exceed 30% of the taxable income can be deducted; individuals donate real estate in the following cases: The parties do not levy individual income tax: Free the housing property to the spouse, parents, children, and the like. The grandparents, grandchildren, grandchildren, brothers and sisters, who directly support or support the family, shall obtain the inheritor of the house property rights, the heirs to the testator, or the bequeathor according to law. In the case of the above, the recipient's donated income received from the unpaid house is paid personal income tax in accordance with the “Other income taxed by the financial department of the State Council.”
History of taxation in the United States
Later, Congress passed the Revenue Act of 1924, which imposed the gift tax, a tax on gifts given by the donor.
Taxation in the Republic of Ireland
A gift is taken when a donee becomes beneficially entitled in possession to some property without paying full consideration for it. Tax is payable within four months of the date of the gift; an interest charge applies to late payments.
Sales taxes in the United States
In general, sales tax is required on all purchases of tangible personal property to its ultimate consumer. Medical devices such as prosthetics and dental implant fixtures are exempt from sales tax with the exception of prosthetic teeth such as dentures, dental orthotics/orthopedic devices, and dental crowns which the state treats as personal property. Grocery goods, bakery items, hot beverages, candies, livestock, crops and seeds, fertilizer used to grow food, certain devices related to alternative energy, and one-time sales are also exempt from sales tax.
Planned giving
Planned gifts are referred to as such because they require more planning, negotiation and counsel than many other gifts. Planned gifts can result in immediate income, income to charity over time or serve to delay a gift for life or other period of time while the donor or others retain income and/or access to the assets used to fund the gift. Because of the current or future charitable benefits, a number of state and/or federal income tax, capital gains, estate and gift benefits are associated with giving in this way.
Gift tax in the United States
"Gifts" received from employers that benefit employees are not excluded from taxation. clearly states employers cannot exclude as a gift anything transferred to an employee that benefits the employee. Consequently, an employer cannot "gift" an employee's salary to avoid taxation.
Tampon tax
In the United States, almost all states tax "tangible individual property" but exempt non-luxury "necessities": groceries, prescriptions, prosthetics, agriculture supplies, and sometimes clothes—the exemptions vary between states. Five states do not have a state sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon), and , ten states specifically exempted essential hygiene products (Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Nevada, and Pennsylvania).
Excise tax in the United States
Federal excise taxes have a storied background in the United States. Responding to an urgent need for revenue following the American Revolutionary War, after the U.S. Constitution was ratified by the ninth state in 1788 the newly elected First United States Congress passed, and President George Washington, signed the Tariff Act of July 4, 1789, which authorized the collection of tariff duties (customs) on imported goods. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first U.S. Secretary of the Treasury, Alexander Hamilton, in 1789, to tax foreign imports. Hamilton thought it was important to start the U.S. federal government out on a sound financial basis with good credit and a regular, easily collected source of income. Customs duties (tariffs) on imported goods, as set by tariff rates, were the source of about 80–95% of all federal revenue up to 1860. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive, brought in enough money to pay off the debt and pay for the relatively low cost federal government (then) and be relatively easy to collect. Tariffs met all these criteria.
United States trust law
Trusts may be created to get funds to the next generation where there is significant wealth and federal exclusionary gifts have already been used up. A common such vehicle is called the grantor retained annuity trust (GRAT). Federal tax law specifically allows for this vehicle. Here the grantor places an asset in the trustone he expects will grow rapidly during the term of the trust. The document then requires the trustee to pay to the settlor a specific sum of money (the annuity) at certain intervals during the life of the trust. If there are assets in the trust at the end of the term, those assets go without estate or gift tax to the remaindermen. Here's a typical case: settlor owns large block of low cost basis stock in a publicly traded company. He does not wish to sell the stock and pay capital gains tax. He also has estate tax problems since his net worth when he dies is likely to be $10 million or more. His attorney drafts a GRAT in which he places $2 million of the single company's stock. The document calls for the smallest legal interest rate (published monthly by the Federal Government), which is then paid through the term of the trust. Upon the termination of the trust, the annuity has been paid back to the grantor and the remaining corpus is delivered to the remaindermen (typically children) without tax. Money has now passed from the grantor to his/her children without gift or estate tax. There has been no capital gains tax.
Excise tax in the United States
In this broad sense, income taxes, value added taxes (VATs), sales taxes, and transfer taxes are examples of other excise taxes, but are typically not called excise taxes (in the United States) because of the different ways they are imposed. In the United States, essentially the only taxes called excise taxes are the taxes on quantities of enumerated items (whiskey, wine, tobacco, gasoline, tires, etc.). Other taxes on certain events may technically be considered excise taxes in the broad sense, but may or may not be collected under the name "excise tax" where the term is used in a different, more narrow sense.
Estate tax in the United States
For a person dying during 2006, 2007, or 2008, the "applicable exclusion amount" is $2,000,000, so if the sum of the taxable estate plus the "adjusted taxable gifts" made during lifetime equals $2,000,000 or less, there is no federal estate tax to pay. According to the Economic Growth and Tax Relief Reconciliation Act of 2001, the applicable exclusion increased to $3,500,000 in 2009, and the estate tax was repealed for estates of decedents dying in 2010, but then the Act was to "sunset" in 2011 and the estate tax was to reappear with an applicable exclusion amount of only $1,000,000.
Taxation in the United Kingdom
Gifts made more than seven years prior to death are not taxed; if they are made between three and seven years before death a tapered inheritance tax rate applies. There are some important exceptions to this treatment: the most important is the "reservation of benefit rule", which says that a gift is ineffective for inheritance tax purposes if the giver benefits from the asset in any way after the gift (for example, by gifting a house but continuing to live in it).
Corporate tax in the United States
In addition, foreign corporations are subject to withholding tax at 30% on dividends, interest, royalties, and certain other income. Tax treaties may reduce or eliminate this tax. This tax applies to a "dividend equivalent amount," which is the corporation's effectively connected earnings and profits for the year, less investments the corporation makes in its U.S. assets (money and adjusted bases of property connected with the conduct of a U.S. trade or business). The tax is imposed even if there is no distribution.
Uniform Gifts to Minors Act
Until 1986, a UGMA or UTMA account allowed the assets to be taxed at the minor's income tax bracket. Tax law changes in 1986, 2006, 2007 and 2017 known as the "kiddie tax" have substantially reduced the tax savings of UGMAs and UTMAs. Until 2018, for beneficiaries under 19 (under 24 if a student), the first $1,000 of unearned income was tax-free, the second $1,000 was taxed at the minor's rate (typically 15%), and the amount over $2,000 was taxed at the parent's rate. The current rule is that for beneficiaries under 19 (under 24 if a student), the first $1,050 of unearned income is tax-free, the second $1,050 is taxed at the minor's rate (typically 12%), and the amount over $2,100 is taxed at the ordinary and capital gains rates applicable to trusts and estates. Minors can also invest in the stock market.
Charitable contribution deductions in the United States
A further trap awaits the unwary U.S. investor who donates depreciated assets—assets on which there have been losses in value—to charity. The gift actually forfeit the tax deductibility of the capital losses, and only the depreciated (low) market value at the time of the gift is allowed to be deducted, rather than the higher basis. However an investor can instead sell the depreciated assets before considering a donation. An investor who sells can realize the resultant capital loss, which may then be deducted under the applicable capital loss rules. The cash proceeds after liquidating the depreciated asset may of course be donated to charity and deducted following the sale, but the tax advantages of making such donation are no better or worse than in any cash donation to charity. In any case, such a course leaves the investor more after-tax assets to donate if so inclined.
Income tax in the United States
Income taxes in the United States are imposed by the federal, most state, and many local governments. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. An alternative tax applies at the federal and some state levels.
Estate tax in the United States
There are two levels of exemption from the gift tax. First, transfers of up to (as of 2013) $14,000 per (recipient) person per year are not subject to the tax. Individuals can make gifts up to this amount to each of as many people as they wish each year. In a marriage, a couple can pool their individual gift exemptions to make gifts worth up to $28,000 per (recipient) person per year without incurring any gift tax. Second, there is a lifetime credit on total gifts until a combined total of $5,250,000 (not covered by annual exclusions) has been given.
Inheritance tax
The different U.S. states all have other regulations regarding inheritance tax:
Some U.S. states impose inheritance or estate taxes (see inheritance tax at the state level):In some jurisdictions, when assets are transferred by inheritance, any unrealized increase in asset value is subject to capital gains tax, payable immediately. This is the case in Canada, which has no inheritance tax.
History of wealth taxes in Canada
Gift tax was introduced as part of R.B. Bennett's New Deal in 1935. It was framed as an antiavoidance measure, as explained by Edgar Nelson Rhodes in that year's Budget speech:
Estate tax in the United States
In states that impose an Inheritance tax, the tax rate depends on the status of the person receiving the property, and in some jurisdictions, how much they receive. Inheritance taxes are paid not by the estate of the deceased, but by the inheritors of the estate. For example, the Kentucky inheritance tax "is a tax on the right to receive property from a decedent's estate; both tax and exemptions are based on the relationship of the beneficiary to the decedent."
Estate tax in the United States
The 2010 Act also provided portability to the credit, allowing a surviving spouse to use that portion of the pre-deceased spouse's credit that was not previously used (e.g. a husband died, used $3 million of his credit, and filed an estate tax return. At his wife's subsequent death, she can use her $5 million credit plus the remaining $2 million of her husband's). If the estate includes property that was inherited from someone else within the preceding 10 years, and there was estate tax paid on that property, there may also be a credit for property previously taxed.
Taxation in the United States
Excise taxes may be imposed on the sales price of goods or on a per unit or other basis, in theory to discourage consumption of the taxed goods or services. Excise tax may be required to be paid by the manufacturer at wholesale sale, or may be collected from the customer at retail sale. Excise taxes are imposed at the federal and state levels on a variety of goods, including alcohol, tobacco, tires, gasoline, diesel fuel, coal, firearms, telephone service, air transportation, unregistered bonds, and many other goods and services. Some jurisdictions require that tax stamps be affixed to goods to demonstrate payment of the tax.
Taxation in the United States
Estate and gift taxes are imposed by the federal and some state governments on the transfer of property inheritance, by will, or by lifetime donation. Similar to federal income taxes, federal estate and gift taxes are imposed on worldwide property of citizens and residents and allow a credit for foreign taxes.
Estate tax in the United States
Supporters of the estate tax argue there is longstanding historical precedent for limiting inheritance, and note current generational transfers of wealth are greater than they have been historically. In ancient times, funeral rites for lords and chieftains involved significant wealth expenditure on sacrifices to religious deities, feasting, and ceremonies. The well-to-do were literally buried or burned along with most of their wealth. These traditions may have been imposed by religious edict but they served a real purpose, which was to prevent accumulation of great disparities of wealth, which, estate tax proponents suggest, tended to avoid destabilizing societies and prevented social imbalance, eventual revolution, or disruption of functioning economic systems.
Taxation in the United States
The Federal Estate Tax was introduced in 1916, and Gift Tax in 1924. Unlike many inheritance taxes, the Gift and Estate taxes were imposed on the transferor rather than the recipient. Many states adopted either inheritance taxes or estate and gift taxes, often computed as the amount allowed as a deduction for federal purposes. These taxes remained under 1% of government revenues through the 1990s.
Estate tax in the United States
U.S. real estate owned by a non-resident alien through a foreign corporation is not included in a non-resident alien's estate. The corporation must have a business purpose and activity, lest it be deemed a sham designed to avoid U.S. estate taxes.
The estate tax of a deceased spouse depends on the citizenship of the surviving spouse.
Donor-advised fund
Current U.S. tax law allows the donor of appreciated securities or other assets to get a tax deduction for the market value of the donation and avoid capital gains taxes. This double tax advantage can make donating appreciated assets to a charitable organization more attractive than selling the assets and donating cash. By donating appreciated assets to a donor-advised fund and then advising the fund to make donations to several charities, one can reap these tax advantages without the hassle and paperwork of transferring non-cash assets to several organizations. This combination of convenience and full tax advantage is one reason that donor-advised funds are used.
Tax basis
Tax basis of property received by a U.S. person by gift is the donor's tax basis of the property. If the fair market value of the property exceeded this tax basis and the donor paid gift tax, the tax basis is increased by the gift tax. This adjustment applies only if the recipient sells the property at a gain.
Charitable trusts in English law
Tax law also makes special exemptions for charitable trusts. They are free from the income tax paid by individuals and companies, and also the corporation tax paid by incorporated and unincorporated associations. There is no requirement for charitable trusts to pay capital gains tax or council tax, although they are obliged to pay VAT. This freedom from tax liability applies not just to charitable trusts, but also to people who donate to them. Individuals who donate via Gift Aid are free from paying tax on that amount, while companies who give gifts to charity can claim tax on the amount back from HM Revenue & Customs.
Companies of the United States with untaxed profits
Companies of the United States with untaxed profits deals with those U.S. companies whose offshore subsidiaries earn profits which are retained in foreign countries to defer paying U.S. corporate tax. The profits of United States corporations are subject to a federal corporate tax rate of 21%. In principle, the tax is payable on all profits of corporations, whether earned domestically or abroad. However, overseas subsidiaries of U.S. corporations are entitled to a tax deferral of profits on active income until repatriated to the U.S., and are regarded as untaxed. When repatriated, the corporations are entitled to a foreign tax credit for taxes (if any) paid in foreign countries.
Endowment tax
In addition to donating money, many charities accept donations in kind, such as cars, houses and art. When a donation is made in kind, the donor must demonstrate the value of the donation in the open market to obtain the corresponding allowance.
Before donating to an asset that has increased in value since the purchase, it is important to consider whether it is better to donate directly to the asset or to donate after the sale.
Direct donations can be taxed at the original purchase price without paying more tax on any potential profits.If a donor receives an income tax credit on the day's value of the share transfer, he does not have to pay VAT on the added value of the donated stock. And after giving away the stock, the donor can buy back the stock at any time, so if you can buy back the stock, it will bring a significant amount of income. But only 30 percent of the tax allowance is given, often less than cash donations.
Gift tax in the United States
Non-resident alien donors are allowed the same annual gift tax exclusion as other taxpayers ($14,000 per year for 2013 through 2016). Non-resident alien donors do not have a lifetime unified credit. Non-resident alien donors are subject to the same rate schedule for gift taxes.
Gift economy
According to the Associated Press, "Gift-giving has long been a part of marijuana culture" and has accompanied legalization in U.S. states in the 2010s. Voters in the District of Columbia legalized the growing of cannabis for personal recreational use by approving Initiative 71 in November 2014, but the 2015 "Cromnibus" Federal appropriations bills prevented the District from creating a system to allow for its commercial sale. Possession, growth, and use of the drug by adults is legal in the District, as is giving it away, but sale and barter of it is not, in effect attempting to create a gift economy. However it ended up creating a commercial market linked to selling other objects. Preceding the January, 2018 legalization of cannabis possession in Vermont without a corresponding legal framework for sales, it was expected that a similar market would emerge there. For a time, people in Portland, Oregon could only legally obtain cannabis as a gift, which was celebrated in the Burnside Burn rally. For a time, a similar situation ensued after possession was legalized in California, Maine and Massachusetts.
United States trust law
Fiduciary tax law is both federal (see the Internal Revenue Code) and state. For Federal income tax purposes in the United States, there are several kinds of trusts: grantor trusts whose tax consequences flow directly to the settlor's Form 1040 (U.S. Individual Income Tax Return) and state return, simple trusts in which all the income created must be distributed to one or more beneficiaries and is therefore taxed to the non-settlor beneficiary (e.g. the widow of a trust created by the late husband), whether or not the income is actually distributed (it happens), and complex trusts, which are, in general, all trusts that aren't grantor trusts or simple trusts. Some trusts may alternate between simple and complex under certain conditions. Many but not all trust organizations do their own tax work. This can be highly specialized work.
Property tax in the United States
Property taxes in the United States originated during colonial times. By 1796, state and local governments in fourteen of the fifteen states taxed land, but only four taxed inventory (stock in trade). Delaware did not tax property, but rather the income from it. In some states, "all property, with a few exceptions, was taxed; in others, specific objects were named. Land was taxed in one state according to quantity, in another according to quality, and in a third not at all. Responsibility for the assessment and collection of taxes in some cases attached to the state itself; in others, to the counties or townships." Vermont and North Carolina taxed land based on quantity, while New York and Rhode Island taxed land based on value. Connecticut taxed land based on type of use. Procedures varied widely.
Sales taxes in the United States
Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. In the United States, sales tax is governed at the state level and no national general sales tax exists. Forty-five states, the District of Columbia, the territories of the Puerto Rico, and Guam impose general sales taxes that apply to the sale or lease of most goods and some services, and states also may levy selective sales taxes on the sale or lease of particular goods or services. States may also delegate to local governments the authority to impose additional general or selective sales taxes.
Estate tax in the United States
As shown, the 2001 tax act would have repealed the estate tax for one year (2010) and would then have readjusted it in 2011 to the year 2002 exemption level with a 2001 top rate. That is, had no further legislation been passed, the estate of a person who died in the year 2010 would have been entirely exempt from tax while that of a person who died in the year 2011 or later would have been taxed as heavily as in 2001. However, on December 17, 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Section 301 of the 2010 Act reinstated the federal estate tax. The new law set the exemption for U.S. citizens and residents at $5 million per person, and it provided a top tax rate of 35 percent for the years 2011 and 2012.
IRS targeting controversy
In 2011, audit letters were sent to five donors to a now-defunct conservative 501(c)(4) group, Freedom's Watch, which were involved in the 2008 election cycle. The goal of the audit was to assess whether or not gift taxes needed to be paid on these donors' donations to Freedom's Watch. The Congressional Research Service said that the audit was legally well-founded, as tax law exempts only 501(c)(3) and 527 groups from gift taxes. However, Ari Fleischer, a board member of the group, alleged that the group was being singled out. According to tax experts, the IRS had not been enforcing that law, but tax lawyers had advised their clients that they might owe the tax, leading to a situation where some paid and some did not. The audit appeared to indicate a new emphasis on enforcing the law, but political opposition from Republicans in Congress led to the IRS dropping the audit and publicly announcing that it would not levy gift taxes on contributions to 501(c)(4) groups. Inspector General J. Russell George's report recommended that the IRS create clearer rules and conduct more training for employees on 501(c)(4) issues, including gift tax exemptions.
Tax withholding in the United States
Companies and individuals who make certain types of payments to foreign persons must withhold Federal income tax on those payments. Foreign persons include nonresident aliens, foreign corporations, and foreign partnerships. Payments subject to withholding include compensation for services, interest, dividends, rents, royalties, annuities, and certain other payments. Tax is withheld at 30% of the gross amount of the payment. This withholding rate may be reduced under a tax treaty. This tax withheld is usually considered a final determination and payment of tax, requiring no further action or tax return by the foreign person.
Marriage penalty
The marriage penalty in the United States refers to the higher taxes required from some married couples with both partners earning income that would not be required by two otherwise identical single people with exactly the same incomes. There is also a marriage bonus that applies in other cases. Multiple factors are involved, but in general, in the current U.S. system, single-income married couples usually benefit from filing as a married couple (similar to so-called income splitting), while dual-income married couples are often penalized. The percentage of couples affected has varied over the years, depending on shifts in tax rates.
Gift (law)
In India, previously there was Gift Tax Act under which donor had to pay the gift tax on the amount of gift. However, the said Act has been abolished and from FY 2004-05, a new provision was inserted in the Income Tax Act (1961) under section 56 (2) which provides that if the gift is received by an individual or Hindu undivided family from any relatives or blood relatives or at the time of marriage or as inheritance or in contemplation of death, it will not be taxable. In all other cases if the aggregagte of gifts received exceeds Rs 50,000 in a year, the gift will be taxable as income from other source.
Gift tax in the United States
Generally, if an interest in property is transferred during the giver's lifetime (often called an inter vivos gift) then the gift or transfer would not be subject to the estate tax. In 1976, Congress unified the gift and estate taxes limiting the giver's ability to circumvent the estate tax by giving during his or her lifetime. Notwithstanding, there remain differences between estate and gift taxes; such as the effective tax rate, the amount of the credit available against tax, and the basis of the received property.
Taxation in the United States
Foreign individuals and corporations not resident in the United States are subject to federal income tax only on income from a U.S. business and certain types of income from U.S. sources. States tax individuals resident outside the state and corporations organized outside the state only on wages or business income within the state. Payers of some types of income to non-residents must withhold federal or state income tax on the payment. Federal withholding of 30% on such income may be reduced under a tax treaty. Such treaties do not apply to state taxes.
Excise tax in the United States
An example of a "state of being" tax is an ad valorem property tax—which is not an excise. Customs or tariffs are based on the property (usually imported goods) as a "state of being" or ad valorem taxes and are also typically not called excise taxes. Excise taxes are collected by producers and retailers and paid to the Internal Revenue Service or other state and/or local government tax collection agency. Historical federal excise tax collections to 1945 are listed in the "Historical Statistics of the United States" and more recent federal excise tax data is listed in the White House historical tables.
Estate tax in the United States
Proponents of the estate tax argue that large inheritances (currently those over $5 million) are a progressive and fair source of government funding. Removing the estate tax, they argue, favors only the very wealthy and leaves a greater share of the total tax burden on working taxpayers. Proponents further argue that campaigns to repeal the tax rely on public confusion about the estate tax and about tax policy more generally. William Gale and Joel Slemrod give three reasons for taxing at the point of inheritance in their book "Rethinking Estate and Gift Taxation". "First, the probate process may reveal information about lifetime economic well-being that is difficult to obtain in the course of enforcement of the income tax but is nevertheless relevant to societal notions of who should pay tax. Second, taxes imposed at death may have smaller disincentive effects on lifetime labor supply and saving than taxes that raise the same revenue (in present value terms) but are imposed during life. Third, if society does wish to tax lifetime transfers among adult households, it is difficult to see any time other than death at which to assess the total transfers made."
Taxation in the United States
Sales taxes are imposed by most states and some localities on the price at retail sale of many goods and some services. Sales tax rates vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed. Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
Estate tax in the United States
For decedents dying in calendar year 2014, 12 states (Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington) and the District of Columbia impose only estate taxes. Delaware and Hawaii allowed their taxes to expire after Congress repealed the credit for state estate taxes, but reenacted the taxes in 2010. Exemption amounts under the state estate taxes vary, ranging from the federal estate tax exemption amount or $5.34 million, indexed for inflation (two states) to $675,000 (New Jersey). The most common amount is $1 million (three states and the District of Columbia). In 2014, four states increased their exemption amounts: Minnesota (phased up to $2 million for 2018 deaths), Rhode Island ($1.5 million for 2015 deaths), and Maryland and New York (both phased their exemptions up to the federal amount for 2019 deaths). Top rates range from 12 percent to 19 percent with most states, like Minnesota, imposing a top rate of 16 percent.
Estate tax in the United States
On July 1, 1862, the U.S. Congress enacted a "duty or tax" with respect to certain "legacies or distributive shares arising from personal property" passing, either by will or intestacy, from deceased persons. The modern U.S. estate tax was enacted on September 8, 1916 under section 201 of the Revenue Act of 1916. Section 201 used the term "estate tax". According to Professor Michael Graetz of Columbia Law School and professor emeritus at Yale Law School, opponents of the estate tax began calling it the "death tax" in the 1940s. The term "death tax" more directly refers back to the original use of "death duties" to address the fact that death itself triggers the tax or the transfer of assets on which the tax is assessed.
Bogardus v. Commissioner
Bogardus v. Commissioner, 302 U.S. 34 (1937), was a United States Supreme Court case discussing, under United States tax law, how to distinguish compensation from tax-exempt gifts under §102(a). It is notable (and thus appears frequently in law school casebooks) for the following holdings:
Is a sum of money paid to former stockholders and employees compensation which is subject to Federal Income Tax or a gift that is exempt from taxes?
Old Colony Trust Co. v. Commissioner
Thus, the company's payment of Wood's tax bill was the same as giving him extra income, regardless of the mode of payment. Further, the payment of taxes of Wood's behalf did not constitute a gift in the legal sense, because it was made in consideration of his services to the company, thus making the payment part of his compensation package. (This case did not change the general rule that gifts are not includable in gross income for the purposes of U.S. Federal income taxation, while some gifts but not all gifts from an employer to an employee are taxable to the employee.).
Taxation in the United States
The taxable amount of a gift is the fair market value of the property in excess of consideration received at the date of gift. The taxable amount of an estate is the gross fair market value of all rights considered property at the date of death (or an alternative valuation date) ("gross estate"), less liabilities of the decedent, costs of administration (including funeral expenses) and certain other deductions. State estate taxes are deductible, with limitations, in computing the federal taxable estate. Bequests to charities reduce the taxable estate.
Estate planning
One way to avoid U.S. Federal estate and gift taxes is to distribute the property in incremental gifts during the person's lifetime. Individuals may give away as much as $15,000 per year (in 2018) without incurring gift tax. Other tax free alternatives include paying a grandchild’s college tuition or medical insurance premiums free of gift tax—but only if the payments are made directly to the educational institution or medical provider.
Endowment tax
The city of Cambridge, Massachusetts, has proposed taxing MIT and other major universities on these previously exempt, non-profit earnings, however most organizations still fight against the introduction of this tax.When a donation exceeds 50 percent of the donor's adjusted gross income (AGI), the IRS will limit the amount of money donated by the donor. Some donors are likely to have a 20% to 30% tax exemption, and marital status may affect that amount, so it is best to consult a tax adviser before making a big charitable donation. In addition, the life insurance death claim donation is not restricted by AGI.
Estate tax in the United States
Taxes which apply to estates or to inheritance in the United States trace back to the 18th century. According to the IRS, a temporary stamp tax in 1797 applied a tax of varying size depending on the size of the bequest, ranging from 25 cents for a bequest between $50 and $100, to 1 dollar for each $500. The tax was repealed in 1802. In the 19th century, the Revenue Act of 1862 and the War Revenue Act of 1898 also imposed rates, but were each repealed shortly thereafter. The modern estate tax was enacted in 1916.
Taxation in the United States
Corporations must pay tax on their taxable income independently of their shareholders. Shareholders are also subject to tax on dividends received from corporations. By contrast, partnerships are not subject to income tax, but their partners calculate their taxes by including their shares of partnership items. Corporations owned entirely by U.S. citizens or residents (S corporations) may elect to be treated similarly to partnerships. A limited liability company and certain other business entities may elect to be treated as corporations or as partnerships. States generally follow such characterization. Many states also allow corporations to elect S corporation status. Charitable organizations are subject to tax on business income.
Gift Tax Act, 1958
There were certain exemptions that were allowed under the Gift Tax. In case of the exchange of gifts between blood relatives, irrespective of the value of the gift, Gift Tax was not applicable. Gift Tax was also not applicable in case of the transfers of immovable property that were situated outside the country. Gifts that were received from relatives for marriage, including gifts to the daughter in law from the bridegroom’s parents, and gifts to the son in law from the bride’s parents were also exempt from tax. Gifts received through a will or through inheritance as well as gifts to parents from their NRI sons and daughters through their NRE account were also under the Gift Tax exempt list.
Excise tax in the United States
Traditionally the federal government has left property taxes and sales taxes to the states and local governments for their revenue. Tariffs or customs duties on imported goods are essentially the only property taxes imposed by the U.S. federal government. Tariffs can be set only by the federal government, not by any state or local jurisdiction. For U.S. constitutional law purposes, a customs duty or tariff is nominally in a separate category from an excise tax. Excise taxes can be (and are) set by federal, state and local jurisdictions.
Taxation in the United States
The U.S. has an assortment of federal, state, local, and special-purpose governmental jurisdictions. Each imposes taxes to fully or partly fund its operations. These taxes may be imposed on the same income, property or activity, often without offset of one tax against another. The types of tax imposed at each level of government vary, in part due to constitutional restrictions. Income taxes are imposed at the federal and most state levels. Taxes on property are typically imposed only at the local level, although there may be multiple local jurisdictions that tax the same property. Other excise taxes are imposed by the federal and some state governments. Sales taxes are imposed by most states and many local governments. Customs duties or tariffs are only imposed by the federal government. A wide variety of user fees or license fees are also imposed.
Sales taxes in the United States
New Jersey does not charge sales tax on unprepared food (except certain sweets and pet food), household paper products, medicine, and clothing. New Jersey does not charge sales tax on goods purchased for resale or on capital improvements but does charge sales tax on certain services.
Taxation in the United States
Taxes may be imposed on individuals (natural persons), business entities, estates, trusts, or other forms of organization. Taxes may be based on property, income, transactions, transfers, importations of goods, business activities, or a variety of factors, and are generally imposed on the type of taxpayer for whom such tax base is relevant. Thus, property taxes tend to be imposed on property owners. In addition, certain taxes, particularly income taxes, may be imposed on the members of organizations for the organization's activities. Therefore, partners are taxed on the income of their partnership.
Income tax in the United States
In addition, Federal income tax may be imposed on non-resident non-citizens, including corporations, on U.S. source income. Federal tax applies to interest, dividends, royalties, and certain other income of nonresident aliens and foreign corporations at a flat rate of 30%. This rate is often reduced under tax treaties. Foreign persons are taxed on income from a U.S. business and gains on U.S. realty similarly to U.S. persons. Nonresident aliens who are present in the United States for a period of 183 days in a given year are subject to U.S. capital gains tax on certain net capital gains realized during that year from sources within the United States. The states tax non-resident individuals only on income earned within the state (wages, etc.), and tax individuals and corporations on business income apportioned to the state.
Bypass trust
Bypass trusts are used in the United States as a legitimate tool to circumvent gift tax, and to minimize taxation of assets upon death of a married couple. The term may have different meanings in other jurisdictions.
Bequest
One reason that the recipient of a bequest is usually not taxed on the bequest is because the donor may be taxed on it. Donors of bequests may be taxed through other mechanisms such as federal wealth transfer taxes. Wealth Transfer taxes, however, are usually imposed against only the very wealthy.
Americans Standing for the Simplification of the Estate Tax
Since 2000, high earners in the U.S. have been able to avoid an estimated $100 billion in gift (taxes) and estate taxes through tax code loopholes. ASSET claims that their plan would eliminate loopholes in the current estate tax code, as well as the need for wealthy taxpayers to shelter their assets in trusts to avoid estate taxes upon death. By eliminating incentives for the high earners to hide assets from the IRS through unproductive tax avoidance schemes, ASSET says that such individuals will therefore have to contribute their fair share of taxes to the U.S. Treasury. The group says that its plan is revenue neutral, and described it as permanent solution to the problems of the current estate tax collection method. The group asserts that the proposal would cost the taxpayers nothing.
26 USC 102(c)
Under U.S. Federal law, 26 USC 102(c) governs the income tax treatment, by an employee, of gifts received by an employee from his or her employer. While gifts are typically exempt from gross income under U.S. federal income tax law, this is not usually so for gifts received from employers. Under Internal Revenue Code section 102(c), gifts transferred by or for an employer to, or for the benefit of, an employee, cannot generally be excluded from gross income.
Tax policy and economic inequality in the United States
The inheritance tax, which is also known as the "gift tax", has been altered in the Post-World War II era as well. First established in 1932 as a means to raise tax revenue from the wealthiest Americans, the inheritance tax was put at a nominal rate of 25% points lower than the estate tax which meant its effective rate was 18.7%. Its exemption, up to $50,000, was the same as the estate tax exemption. Under current law, individuals can give gifts of up to $13,000 without incurring a tax and couples can poll their gift together to give a gift of up to $26,000 a year without incurring a tax. The lifetime gift tax exemption is $5 million which is the same amount as the estate tax exemption. These two exemptions are directly tied to each other as the amount exempted from one reduces the amount that can be exempted from the other at a 1:1 ratio. The inheritance/gift tax generally affects a very small percentage of the population as most citizens do not inherit anything from their deceased relatives in any given year. In 2000, the Federal Reserve Bank of Cleveland published a report that found that 1.6% of Americans received an inheritance of $100,000 or more and an additional 1.1% received an inheritance worth $50,000 to $100,000 while 91.9% of Americans did not receive an inheritance. A 2010 report conducted by Citizens for Tax Justice found that only 0.6% of the population would pass on an inheritance in the event of death in that fiscal year. Accordingly, data shows that inheritance taxes are a tax almost exclusively on the wealthy. In 1986, Congress enacted legislation to prevent trust funds of wealthy individuals from skipping a generation before taxes had to be paid on the inheritance.
Estate tax in the United States
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 became law on December 17, 2010. The 2010 Act changed, among other things, the rate structure for estates of decedents dying after December 31, 2009, subject to certain exceptions. It also served to reunify the estate tax credit (aka exemption equivalent) with the federal gift tax credit (aka exemption equivalent). The gift tax exemption is equal to $5,250,000 for estates of decedents dying in 2013, and $5,340,000 for estates of decedents dying in 2014.
Corporate tax in the United States
The United States does not generally require withholding tax on the payment of dividends to shareholders. However, withholding tax is required if the shareholder is not a U.S. citizen or resident or U.S. corporation, or in some other circumstances (see Tax withholding in the United States).
Estate tax in the United States
Furthermore, the estate tax exemption is not portable among spouses if one of the spouses is a noncitizen.
Currently, fifteen states and the District of Columbia have an estate tax, and six states have an inheritance tax. Maryland and New Jersey have both. Some states exempt estates at the federal level. Other states impose tax at lower levels; New Jersey taxes estates beginning at $675,000.
Gift tax in the United States
Furthermore, transfers (whether by bequest, gift, or inheritance) in excess of $1 million may be subject to a generation-skipping transfer tax if certain other criteria are met.
Estate tax in the United States
If an asset is left to a spouse or a federally recognized charity, the tax usually does not apply. In addition, a maximum amount, varying year by year, can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes: $5,340,000 for estates of persons dying in 2014 and 2015, $5,450,000 (effectively $10.90 million per married couple, assuming the deceased spouse did not leave assets to the surviving spouse) for estates of persons dying in 2016. Because of these exemptions, it is estimated that only the largest 0.2% of estates in the U.S. will pay the tax. For 2017, the exemption increased to $5.5 million. In 2018, the exemption doubled to $11.18 million per taxpayer due to the Tax Cuts and Jobs Act of 2017. As a result, only approximately 2,000 people (or 0.0006% of the population) in the US are currently liable for estate tax.
Estate tax in the United States
Five states (Iowa, Kentucky, Nebraska, Pennsylvania, and Tennessee) impose only inheritance taxes. The Tennessee tax was eliminated for deaths after December 31, 2015. The exemptions under state inheritance taxes vary greatly, ranging from $500 (Kentucky and New Jersey) for bequests to unrelated individuals to unlimited exemptions (Iowa and Kentucky) for bequests to lineal heirs, such as children or parents of the decedent. No states tax bequests to surviving spouses. Top tax rates range from 4.5 percent (Pennsylvania on lineal heirs) to 18 percent (Nebraska on collateral heirs). Tennessee's inheritance tax is calculated more like an estate tax (i.e., the tax does not vary based on the beneficiary).
History of taxation in the United States
In 1948 Congress allowed marital deductions for the estate and the gift tax. In 1981, Congress expanded this deduction to an unlimited amount for gifts between spouses.
Uniform Transfers to Minors Act
The Uniform Transfers To Minors Act (UTMA) is a uniform act drafted and recommended by the National Conference of Commissioners on Uniform State Laws in 1986, and subsequently enacted by most U.S. States, which 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 Internal Revenue Service requirements for qualifying a gift of up to $14,000 for exclusion from the gift tax. It is a more flexible extension of the Uniform Gifts to Minors Act (UGMA), and allows the gifts to be real estate, inheritances, and other property.
Scholarship tax credit
Scholarship tax credit programs of the United States of America, also called tax credit scholarship, education tax credit or tuition tax credit programs, are a form of school choice that allows individuals or corporations to receive a tax credit from state taxes against donations made to non-profit organizations that grant private school scholarships. At the start of the 2014–2015 school year, fourteen states had scholarship tax credit programs.
Income tax in the United States
Capital gains: and qualified dividends may be taxed as part of taxable income. However, the tax is limited to a lower tax rate. Capital gains include gains on selling stocks and bonds, real estate, and other capital assets. The gain is the excess of the proceeds over the adjusted basis (cost less depreciation deductions allowed) of the property. This limit on tax also applies to dividends from U.S. corporations and many foreign corporations. There are limits on how much net capital loss may reduce other taxable income.
Tax credits: All taxpayers are allowed a credit for foreign taxes and for a percentage of certain types of business expenses. Individuals are also allowed credits related to education expenses, retirement savings, child care expenses, some health care premiums, and a credit for each child. Each of the credits is subject to specific rules and limitations. Some credits are treated as refundable payments.
Negative option billing
According to the Federal Trade Commission, unsolicited goods are considered a gift, and the recipient is not required to pay for or return them.
Estate tax in the United States
The tentative tax is reduced by gift tax that would have been paid on the adjusted taxable gifts, based on the rates in effect on the date of death (which means that the reduction is not necessarily equal to the gift tax actually paid on those gifts).
Income tax in the United States
Persons paying wages or making certain payments to foreign persons are required to withhold income tax from such payments. Income tax withholding on wages is based on declarations by employees and tables provided by the IRS. Persons paying interest, dividends, royalties, and certain other amounts to foreign persons must also withhold income tax at a flat rate of 30%. This rate may be reduced by a tax treaty. These withholding requirements also apply to non-U.S. financial institutions. Additional backup withholding provisions apply to some payments of interest or dividends to U.S. persons. The amount of income tax withheld is treated as a payment of tax by the person receiving the payment on which tax was withheld.
Income tax in the United States
Estates and trusts may be subject to income tax at the estate or trust level, or the beneficiaries may be subject to income tax on their share of income. Where income must be distributed, the beneficiaries are taxed similarly to partners in a partnership. Where income may be retained, the estate or trust is taxed. It may get a deduction for later distributions of income. Estates and trusts are allowed only those deductions related to producing income, plus $1,000. They are taxed at graduated rates that increase rapidly to the maximum rate for individuals. The tax rate for trust and estate income in excess of $11,500 was 35% for 2009. Estates and trusts are eligible for the reduced rate of tax on dividends and capital gains through 2011.
Revenue Act of 1932
The Act also imposed a gift tax, effective with respect to gifts made on or after June 7, 1932.
History of taxation in the United States
In the 1880s and 1890s many states passed inheritance taxes, which taxed the donees on the receipt of their inheritance. While many objected to the application of an inheritance tax, some including Andrew Carnegie and John D. Rockefeller supported increases in the taxation of inheritance.
Crummey trust
Normally, gifts to minors are subject to parental / guardian control until the age of majority. In order to delay the transfer of control beyond the age of 18, the funds must be placed in trust. However, the annual gift exclusion ($15,000 per individual and $30,000 per married couple as of 2018) from the gift tax is only available for gifts of so-called "current interests". Normally, a gift into a trust that comes under control of the beneficiary at a future date does not constitute a current interest.
Tithe
While the federal government has never collected a church tax or mandatory tithe on its citizens, states collected a tithe into the early 19th century. The United States and its governmental subdivisions also exempt most churches from payment of income tax (under Section 501(c)(3) of the Internal Revenue Code and similar state statutes, which also allows donors to claim the donations as an income tax itemized deduction). Also, churches may be permitted exemption from other state and local taxes such as sales and property taxes, either in whole or in part. Clergy, such as ministers and members of religious orders (who have taken a vow of poverty) may be exempt from federal self-employment tax on income from ministerial services. Income from non-ministerial services are taxable and churches are required to withhold Federal and state income tax from this non-exempt income. They are also required to withhold employee's share of Social Security and Medicare taxes under FICA, and pay the employer's share for the non-exempt income.
Gift
In some countries, certain types of gifts above a certain monetary amount are subject to taxation. For the United States, see Gift tax in the United States.
Estate tax in the United States
The $11.2 million exemption specified in the Acts of 2010 and 2012 (cited above) applies only to U.S. citizens or residents, not to non-resident aliens. Non-resident aliens have a $60,000 exclusion instead; this amount may be higher if a gift and estate tax treaty applies.
Gift tax in the United States
According to 26 USC section 2523(i), gifts to a non-U.S.-citizen spouse are not generally exempt from gift tax. Instead, they are exempt only up a specified amount foreseen by 26 USC section 2503 (b) (that is, up to $147,000 for 2015).
Taxation in the United States
Estate and gift taxes in the United States are imposed by the federal and some state governments. The estate tax is an excise tax levied on the right to pass property at death. It is imposed on the estate, not the beneficiary. Some states impose an inheritance tax on recipients of bequests. Gift taxes are levied on the giver (donor) of property where the property is transferred for less than adequate consideration. An additional generation-skipping transfer (GST) tax is imposed by the federal and some state governments on transfers to grandchildren (or their descendants).
Inheritance Tax in the United Kingdom
Transfers of value will also include gifts arising from the amount by which an asset is sold for less than it could have been sold on the open market, as for a sale from a parent to a child. Gifts can also arise where:
Tax withholding in the United States
Payers of interest, dividends, and certain other items must withhold 28% Federal income tax on such payments in limited circumstances. Generally, this applies only if the recipient is a U.S. person, and either
Gift tax in the United States
Gifts from certain parties will always be taxed for U.S. Federal income tax purposes. Under Internal Revenue Code section 102(c), gifts transferred by or for an employer to, or for the benefit of, an employee cannot be excluded from the gross income of the employee for Federal income tax purposes. While there are some statutory exemptions under this rule for de minimis fringe amounts, and for achievement awards, the general rule is the employee must report a "gift" from the employer as income for Federal income tax purposes. The foundation for the preceding rule is the presumption that employers do not give employees items of value out of "detached and disinterested generosity" due to the existing employment relationship.
Washburn v. Commissioner
In response to this and other cases (e.g. the "Ross Essay Contest" case, "McDermott v. Commissioner") holding that prizes constituted nontaxable gifts, Congress added § 74 to the 1954 Code. See S. REP. NO. 1622, 83d Cong., 2d Sess. 13, 178 (1954), reprinted in 1954 U.S. CODE CONG. & AD. NEWS 4621, 4813. Since enactment of § 74, courts have rejected the gift theory for prizes and awards. "See, e.g., Simmons v. United States," 197 F. Supp. 673 (D. Md. 1961), aff'd, 308 F.2d 160 (4th Cir. 1962); "Hornung v. Commissioner," 47 T.C. 428 (1967).
Estate tax in the United States
For example, assume an estate of $3.5 million in 2006. There are two beneficiaries who will each receive equal shares of the estate. The maximum allowable credit is $2 million for that year, so the taxable value is therefore $1.5 million. Since it is 2006, the tax rate on that $1.5 million is 46%, so the total taxes paid would be $690,000. Each beneficiary will receive $1,000,000 of untaxed inheritance and $405,000 from the taxable portion of their inheritance for a total of $1,405,000. This means the estate would have paid a taxable rate of 19.7%.
Gift tax
In economics, a gift tax is the tax on money or property that one living person gives to another. Items received upon the death of another are considered separately under the inheritance tax. Many gifts are not subject to taxation because of exemptions given in tax laws. The gift tax amount varies by jurisdiction, and international comparison of rates is complex and fluid.
Gift tax in the United States
A gift tax is a tax imposed on the transfer of ownership of property. The United States Internal Revenue Service says, a gift is "Any transfer to an individual, either directly or indirectly, where full compensation (measured in money or money's worth) is not received in return."
Marital deduction
Marital deduction is a type of tax law that allows a person to give assets to his or her spouse with reduced or no tax imposed upon the transfer. Some marital deduction laws even apply to transfers made postmortem. The right to receive property conveys ownership for tax purposes. A decree of divorce transfers the right to that property by reason of the marriage and is also a transfer within a marriage. It makes no difference whether the property itself or equivalent compensation is transferred before, or after the decree dissolves the marriage. There is no U.S. estate and gift tax on transfers of any amount between spouses, whether during their lifetime or at death. There is an important exceptions for non-citizens. The U.S. federal Estate and gift tax marital deduction is only available if the surviving spouse is a U.S. citizen. For a surviving spouse who is not a U.S. citizen a bequest through a Qualified Domestic Trust defers estate tax until principal is distributed by the trustee, a U.S. citizen or corporation who also withholds the estate tax. Income on principal distributed to the surviving spouse is taxed as individual income. If the surviving spouse becomes a U.S. citizen, principal remaining in a Qualifying Domestic Trust may then be distributed without further tax.
Planned giving
Planned giving (less commonly known as gift planning ) is an area of fundraising that refers to several specific gift types that can be funded with cash, equity, or property. These gift vehicles are commonly based on United States tax law, but Canada, the United Kingdom, and other nations are beginning to establish similar laws. In the United States the specific rules of planned giving are defined by the United States Congress and the Internal Revenue Service.
Gift Aid
Gift Aid is a UK tax incentive that enables tax-effective giving by individuals to charities in the United Kingdom. Gift Aid was introduced in the Finance Act 1990 for donations given after 1 October 1990, but was originally limited to cash gifts of £600 or more. This threshold was successively reduced in April 2000 when the policy was substantially revised and the minimum donation limit removed entirely. A similar policy applies to charitable donations by companies that are subject to the UK corporation tax.
Accidental American
Like the United States, many other countries have laws for transmission of citizenship by descent, but those countries impose tax filing obligations only on people who reside or earn income in those countries; the United States and Eritrea are the only countries which impose taxation and reporting requirements on the income which citizens living abroad permanently earn in their countries of residence. Despite their lack of personal or business ties to the United States, accidental Americans have the same U.S. tax filing and payment obligations as do self-identifying "Americans abroad" who are aware of their U.S. citizenship status, and are subject to the same fines for failure to file. Tax treaties generally do not serve to mitigate the double taxation and filing burdens such people face, as all U.S. tax treaties give the U.S. the power to tax U.S. citizens residing in other countries as if the treaty did not exist; such treaties generally only benefit business entities and dual-resident non-U.S. citizens. The result, as tax attorney Gavin Leckie put it, is that "people who have no sense of being American find themselves caught up in a maze of rules really aimed at the U.S. resident citizen seeking to defer or evade U.S. taxes by holding assets offshore".