Consider the Other Estate Taxes When Deciding Where to Retire – Which state you are residing in when you pass away can have big tax ramifications.

Q:

Subject: death tax article

 

http://taxguru.org/estate/706.htm

 

Dear Tax Guru – great summary on death and gift taxes.

As you stated, the recipient of a gift does not need to pay taxes.

What in case of a death/inheritance? Does the recipient need to pay federal taxes?

 

Thanks.

A:

Gifts and inheritances are very similar in regard to taxability.  Most items received are not subject to tax on the recipient.  There are a few exceptions to this; most commonly pre-tax retirement accounts, which are classified as Income In Respect of a Decedent (IRD) and taxable to the recipient.  The timing of the actual tax liability is flexible  and was addressed in a recent Q&A that I posted.

The biggest difference between receiving items as a gift versus as an inheritance has to do with the cost basis for the recipient.  In most cases, the cost basis of assets received as a gift is the lower of the giver’s cost basis or its fair market value at the time of the gift.  For highly appreciated assets, this literally means that the recipient is accepting the tax liability on any future sale.

For most assets received as an inheritance, the cost basis for the recipient is adjusted (stepped-up) to its fair market value as of the date of death.  For highly appreciated assets, this means the capital gain is erased before the heir receives it and s/he will only be responsible for future appreciation.

This is a very concise and limited explanation of gifting and inheritances.  Any such strategy that you and others are contemplating should be reviewed by an experienced tax pro before setting it into motion.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

Hi Kerry –

 

Thank you very much for the detailed answer!

 

From Ryan Ellis:

Subject: Bloglines Account Addition

Kerry:

 

I hope you consider also adding my blog, www.taxplaya.com.  I update it with a (hopefully helpful) tax question every business day.  I also have a list of 2006 inflation adjusted tax items, a tax reading list, and a feed to Tax Prof Blog.

Ryan:

I’m glad to add your blog to my Bloglines subscriptions.

Your layout is very impressive.  You’ve made very good use of the three-column format.

The section on the left with the Tax Changes For 2006 is a very nice touch.

Thanks for letting me know about your blog. It’s great to see more tax pros utilizing this extremely effective communication tool.

Kerry

 

From the Left Coast:

Subject: Future Client Inquiry

 

Hi Kerry,

 

I understand that you aren’t taking on any new clients at this time (and don’t think you’d want me in my present state of disorganization anyway, but I’m working on it lol), but I wondered at what point in the future you might again?  Is there some way that I can get on a waiting list?

 

Thanks for providing such a valuable and entertaining resource.  I really admire the sense of control you appear to have over your life!

 

ps. My dad’s janitorial business has been doing some work at your alma mater for the past 5 years.  Did you hear that Cal State Hayward changed it’s name to Cal State East Bay sometime back in 2005?!?  I live about 20 minutes away.

 

Thanks,

My reply:

At this time, we’re still in the cut-back phase of adjusting our client load to a size that I can handle in a timely manner.  My goal is to get it down to a point where I can easily turn around tax returns and other projects within a few weeks, rather than the several months it’s now taking me.  I really have no idea when we will reach that goal. 

I have been keeping the emails I receive from prospective clients in a special folder.  When we reach the point that I can feel that adding a new client won’t jeopardize my ability to service existing ones, we will be extremely selective in accepting any new ones, including the proper use of QuickBooks, one of the main criteria we have been using in deciding who to drop.

I did notice that CSUH changed its name.  I assumed that was due to growth in the satellite Contra Costa campus, something that was just getting started when I was going to the Hayward site.

Thanks for writing and good luck with your endeavors out there on the Left Coast.

Kerry Kerstetter

 

From David Ingram:

Subject: US Canadian Tax services

In a recent Q & A you had a question about US / Canadian / Dubai and UK taxes.

 

You suggested googling to find such.

 

I would point out that googling

 

income tax help us canada dubai uk

 

will bring us up.

 

I have several clients in Dubai with holdings in the US, Spain, London, and Canada.

 

and a google of income tax expert without the countries brings us up in a favourable position on two different websites in the top ten (1 and 3 today).

 

Gary Gauvin who is number two under – income tax expert – today was my assistant, manager and then partner in my Ottawa office.

 

Have been in the business for 43 years and have never met half my clients because they live in another country.

 

Like your attitude about a lot of things.

My Reply:

David:

Thanks for letting me know about your expertise with these specialized areas of taxation that are well outside my comfort zone.

I will pass that along, including links to your website.

www.centa.com

www.david-ingram.com

Kerry Kerstetter

Follow-Up:

You are welcome. I think we are both doing this for the fun of it.  goodness knows, I don’t need another client.

I decide to expand again this last January.  Hired 5 people and do not have one left.  None of them could do the cross border stuff even though they had 11 degrees and about 60 years of single country tax experience.

As you know it is hard to find someone who can regularly do two states without problems.

Q:

Subject: Tax free gifts

 

Thanks for the info.

 

Are there any state tax implications for the recipient of a gift under the limit, or do you ignore it for your state return as well (NJ in particular)?

A:

Most states piggy-back on the Federal rules; but a few of them have their own.

You should check with your personal professional tax advisor to see if there will be any state tax consequences in your particular state.  Or if you’re feeling brave, you can check your state tax agency’s website.  www.SisterStates.com will take you there.

Good luck.

Kerry Kerstetter