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Thread: The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

  1. Top | #131
    Cyborg with a Tiara
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    Quote Originally Posted by jonatha View Post
    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.
    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)

    If gift tax is owed, the giver files a gift tax return. The giver has a lifetime exclusion amount of $11.5 million (this is the gross amount given, not the tax due) and any gift tax due is subtracted from the lifetime exclusion amount. Only when (if....) that is used up is any tax payment made.
    Then why the rules about spreading a gift out over 5 years, if you always get to spread it out over a lifetime anyway?

  2. Top | #132
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)

    If gift tax is owed, the giver files a gift tax return. The giver has a lifetime exclusion amount of $11.5 million (this is the gross amount given, not the tax due) and any gift tax due is subtracted from the lifetime exclusion amount. Only when (if....) that is used up is any tax payment made.
    Then why the rules about spreading a gift out over 5 years, if you always get to spread it out over a lifetime anyway?
    Not sure what rule you're referring to...

  3. Top | #133
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    Quote Originally Posted by jonatha View Post
    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)
    And that’s another part of my point. That’s a loophole.
    I’m giving each of my kids an enormous gift and a significant life advantage by paying for their college. My kids get to receive this gift - this income - without paying taxes on it.

    That’s a loophole.

    We can talk about whether that’s appropriate, but we should not pretend it’s not a loophole.

  4. Top | #134
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    Quote Originally Posted by jonatha View Post
    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)

    If gift tax is owed, the giver files a gift tax return. The giver has a lifetime exclusion amount of $11.5 million (this is the gross amount given, not the tax due) and any gift tax due is subtracted from the lifetime exclusion amount. Only when (if....) that is used up is any tax payment made.
    Then why the rules about spreading a gift out over 5 years, if you always get to spread it out over a lifetime anyway?
    Not sure what rule you're referring to...
    From the nerdwallet link,

    Spoiling the grandkids with college money
    If Grandma or Grandpa put, say, $60,000 in a 529 plan for a grandchild, Picciurro gives as an example, that may trigger the gift tax exclusion because it's over the limit.
    A special rule allows gift givers to spread one-time gifts across five years’ worth of gift tax returns to preserve their lifetime gift exclusion.

  5. Top | #135
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Not sure what rule you're referring to...
    From the nerdwallet link,

    Spoiling the grandkids with college money
    If Grandma or Grandpa put, say, $60,000 in a 529 plan for a grandchild, Picciurro gives as an example, that may trigger the gift tax exclusion because it's over the limit.
    A special rule allows gift givers to spread one-time gifts across five years’ worth of gift tax returns to preserve their lifetime gift exclusion.
    That appears to be a provision specific to 529 plans (see Internal Revenue Code 529(c)(2)(B)). It does not apply to gifts in general as near as I can tell.

  6. Top | #136
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post
    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)
    And that’s another part of my point. That’s a loophole.
    I’m giving each of my kids an enormous gift and a significant life advantage by paying for their college. My kids get to receive this gift - this income - without paying taxes on it.

    That’s a loophole.

    We can talk about whether that’s appropriate, but we should not pretend it’s not a loophole.
    It allows is for parents (or grandparents) to directly pay for their offspring's (over 18 yo) educational expenses and/or medical expenses without having to pay an additional tax on that 'gift.' It is quite likely that such expenses, which are almost always beyond the ability of any student to pay, will reach or even exceed $15000/year.

    The best way to eliminate such a 'loophole' is to make education and health care much less expensive.

    Note: It is not uncommon for childcare costs to reach or exceed $15,000/year. I don't regard making childcare expenses deductible in part or totally to be a loophole or an unjustifiable deduction.

  7. Top | #137
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    Quote Originally Posted by Toni View Post
    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post
    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)
    And that’s another part of my point. That’s a loophole.
    I’m giving each of my kids an enormous gift and a significant life advantage by paying for their college. My kids get to receive this gift - this income - without paying taxes on it.

    That’s a loophole.

    We can talk about whether that’s appropriate, but we should not pretend it’s not a loophole.
    It allows is for parents (or grandparents) to directly pay for their offspring's (over 18 yo) educational expenses and/or medical expenses without having to pay an additional tax on that 'gift.' It is quite likely that such expenses, which are almost always beyond the ability of any student to pay, will reach or even exceed $15000/year.
    I agree that is what it does.
    I’m bringing up that it is income to the child that they do not have to pay taxes on. It’s a loophole.

    People like the loophole, they think it’s a justified loophole, but it nevertheless is a significant acquisition of wealth by an adult offspring, that is not taxed. My kids will start their working lives with only a token debt (we made each take out a $5K loan). This will give them an income advantage over their peers that lasts decades. To say that they did not receive any income from this is a labeling game, IMHO, meant to avoid taxes.

    I get the benefits of being able to help one’s adult children this way. It’s fabulous, and I’m glad we can do it. But I feel that it is a lie to say it’s not an income they received for being cute.



    The best way to eliminate such a 'loophole' is to make education and health care much less expensive.

    I feel that’s an unrelated social issue. Very important, but not part of the “what is income” discussion.

    Note: It is not uncommon for childcare costs to reach or exceed $15,000/year. I don't regard making childcare expenses deductible in part or totally to be a loophole or an unjustifiable deduction.
    Deductibles are also a different discussion than “what is income.”

  8. Top | #138
    Loony Running The Asylum ZiprHead's Avatar
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    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

    As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.
    When conservatives realize they cannot win democratically, they will not abandon conservatism. They will abandon democracy.

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  9. Top | #139
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    Quote Originally Posted by ZiprHead View Post
    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

    As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.
    Nope. Harry Bosch's last sentence applies to ANY type of item sold. Stocks, sure - but also gold, silver, real estate, artwork, even personal items (like a boat or jewelry) that are sold for a profit. And don't forget our individual cryptocurrency holder; if they sell for a profit it is treated the same as the millionaires stock sale. My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it. That is precisely the same transaction that you say should be taxed annually since it was "a clear and legal tax dodge". I disagree completely.

    Ruth

  10. Top | #140
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    Quote Originally Posted by ZiprHead View Post
    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

    As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.
    I'm not a fan of the wealth tax. I agree with Ruth's post 101. The reason why all but three European companies have given up on the wealth tax. And even those three countries have greatly reduced their wealth taxes (far below the rate that Warren is recommending.) A wealth tax is inefficient, hard to measure, difficult to collect, creates incentives to cheat. Secondly, a lot of private companies would just never go public. For various reasons, it's better for society when a private company goes public (probably should be a separate thread.)

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