Accting 123A - Designing a tax system Equitable People in...

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Designing a tax system Equitable People in similar positions should pay same amount of tax Convenient Should be easy to assess, collect, and administer Certain People need to be able to plan their investments around the tax, cant have it be changing Economical Shouldn't cost the government 90 cents to collect 1$, and it shouldn't cost taxpayers too much Formula for tax Some sort of tax base (income / value of property / etc) * tax rate = Tax Gift tax Tax based on fair market value of property given away Donor is subject to the tax Tax is based on value of property given Gifts not Taxable Services Support of dependents Medical or educational expenses Gifts to charities Gifts to Spouse Annual Exclusion 13,000$ Each Donee Each Year Gift Splitting Elective Married Individuals Annual exclusion used by each spouse Advantages of gifts Lowers value of estate Transfers future appreciation if it was worth 13000$ when u bought it and its worth 400000$ when u transfer it u don't have to pay gift tax Transfers income from property Gift Tax Unified Credit Same credit for estate tax Every individual entitled to credit Statutory amount Its a dollar amount written into the law 2004 = $345,800 FMV equivalent = $1,000,000 will not have to pay any credited gift tax until after you give away up to 1,000,000$, its a life time accumulation
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Ex: Say we gave a gift for 1,512,000$, - 12000$ (tax exclusion), so now you have a taxable gift of 1,500,000$, now lets say gross tax is 555,800, but you get a unified credit of 345,800, so you end up paying (555,800 – 345,800) = 210,000$ Calculation of the gift tax FMV of current gifts Less: exclusions, etc. Add: prior taxable gifts Ex: say you gave a gift of 500k in 2009, you now have to add FMV of gift tax from previous years, 2005 – 300K , 2001 – 200K, 1998 – 500K = 1,500,000, this moves it into the highest possible tax bracket Gift Tax Form 709 Calendar Year Due April 15 th Estate Tax Form 706 Due 9 months after death Will Holographic Written on a random piece of paper Statutory Used software Formal Hire Lawyer A will does not control Contracts Title to Property if title of property is held with a person in community property, the surviving tenant gains ownership, ex: if you live with sister in a property and you leave property to wife, it will still go to sister Property in Trust Probate – state probate court Appoint Representative Inventory Assets Notify Creditors Pay Debts Notify Beneficiaries Transfer Property How to avoid Not necessary if total value of assets is less than $100,000 Assets held in joint tendency with right of survivorship Assets left to surviving spouse don't need to go through probate Assets held in a living trust
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State.

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Accting 123A - Designing a tax system Equitable People in...

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