Recently, questions have arisen regarding the applicability of the gift tax to contributions to 501(c)(4) organizations.
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If a 501(c)(4) organization makes a gift it is not subject to the gift tax.
The gift tax is a separate excise tax on a transfer by an individual donor.
Heck, if a regular taxable corporation makes a gift it is not subject to the gift tax.
And in a gimme to the rich, it includes unifying the gift tax and the estate tax.
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So will both the estate tax and the gift tax be repealed ?
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Usually people gift if the gift tax and income tax on the carry over basis is less than the estate tax.
For one thing, remember that the gift tax (often coupled with the estate tax) has a current maximum rate of 35%.
What if the estate tax is repealed with the gift tax left in place, with who knows what lifetime exemption ?
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Romney would eliminate the estate tax completely, while retaining the gift tax.
The gift tax, penalty and interest is going to take a pretty large chunk out of the three million dollars that Joe was counting on.
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The reason: A gift of that magnitude would trigger the gift tax, which is currently 35% but is set to rise to 55% in 2011.
This time the prevailing view was that clients should avoid the gift tax altogether by taking full advantage of the generous exemption for lifetime gifts.
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This may seem counter-intuitive but the whole point of the gift tax is to prevent people from using lifetime gifts to avoid paying the estate tax.
Even when gift and estate taxes carry the same nominal tax rate, paying the gift tax works out to be cheaper than paying the estate tax.
In May 2011, the IRS was caught sending letters to big donors of 501(c) groups, suggesting that their contributions could be retroactively taxed under the gift tax.
This year, thanks to the Bush tax cuts, the gift tax rate is only 35%, but next year it is set to go back up to 55%.
The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.
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As we consider this issue, it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.
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Assuming that you're in the top bracket for these transfer taxes no matter what and that the law doesn't change, the gift tax is the cheaper of the two.
The gift tax exemptions and rates will follow suit.
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Note: If you die within three years of making a taxable gift, the original value of the gift and the gift tax get added back to your estate and the gift tax paid is credited toward your estate's tax bill.
Last year, Tennessee Gov. Bill Haslam signed into law legislation repealing the state gift tax and phasing out the state estate tax.
The increase in other federal government tax revenue would more than offset the decline in the estate tax portion of the estate and gift tax.
When the top gift tax rate fell from 45% to 35% at the start of the year, rich folks started talking about making taxable gifts again to their kids and grandkids to reduce the size of their estates.
The federal gift tax theoretically applies to any gratuitous transfer of property by an individual.
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Gifts in excess of the annual exclusion are subject to the federal gift tax.
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