Tax Guru – Ker$tetter Letter

Republicans Warn of Tax Hikes Ahead – With so many of Bush’s tax cuts expiring in the next few years, we are looking at some huge tax increases just from our rulers continuing to sit on their hands and failing to act on extending them; or better still, making them permanent. Hillary is literally chomping at the bit to be in command and responsible for even bigger tax hikes than the humongous ones the Clinton-Gore team retroactively forced on us back in 1993. 

Q:

Subject:  Permission to print your web page on corporations

 

I would like to recommend your web site C vs S Corporations in a brochure about starting a business. Your site is very well written and easily understandable.

 

My intent is to print the pages out and included in a handbook but of course I will not recommend such without your permission.

 

Allow me to thank you advance for your consideration.

 

Sincerely

A:

As long as you mention where you found it, such as the URL to my blog or website, feel free to print and distribute anything you find.

Good luck.

Kerry Kerstetter

Follow-Up:

Thanks,  I’d wouldn’t do it without mentioning you! That is the only way I know how to play.

Q:

Subject: Question

My Mom wants to gift me and my brother $100,000 each.  Her entire estate is worth approximately $300,000. 

Question:  Can she do this with paying a gift tax ? 

Question:  Will we have to pay any taxes.

Question:  I assume the 5 year time period will have to pass before this money is considered no longer her asset??

Thank you,

A:

It sounds as if your mom is trying to do some impoverishment planning to qualify for Medicaid and/or other programs that penalize people with too much net worth.  This is an actual specialty with some attorneys and financial planners, so she really needs to work out such a strategy with a professional experienced in this area, including the specific look-back rules for her state.

She also needs to consult with a qualified professional tax advisor who can explain the mechanics of making such large gifts in regard to gift tax returns and how this will affect her future exclusion from estate taxes. 

In regard to you and your brother, there will be no taxes required on the receipt of the gifts.  What you do with the gifts could create tax issues, that you and your brother need to discuss with your own professional tax advisors. 

If those gifts are made via money, documenting the transactions will be simple.  If you are being transferred assets, such as real estate, you will need to determine your mom’s cost basis in those assets, because that will now become your costs basis in the event of a future sale of those items.  A good tax advisor can help with this.

While you are not required to report the receipt of gifts on your income tax returns, you may want to attach a note to your return describing the gift, especially if you use some of the money in ways that show up as large deductions on your tax returns, such as donations or business expenses.  Without an explanation of the tax free source of the funds, IRS could suspect you of under-reporting taxable income and launch an excruciating examination of all of your finances.  I have seen its happen, so t’s not mere alarmist fantasy.

I have some basic info on Gift Taxes on my website, which you should look over before meeting with a professional tax advisor.

Good luck.  I hope this helps. 

Kerry Kerstetter

Follow-Up:

Kerry,

Thank you so much for your response.  I just wanted to make sure we were not doing anything illegal.  We will take your advise and contact a

professional.

Kind regards,

From the free WSJ:

How to Trim Taxes as You Age

 

Your Home Isn’t the Nest Egg That You May Think It Is

 

Patents on Tax-Related Ideas Stir Worry – Includes a link to IRS’s 31 page 2007 Tax Hints.

 

H-P’s Pension Switch Signals End to Era Of Cozy Retirements

 

Can Friends Be Strong Business Partners? – They’ll soon be ex-friends.

Typical Tax-Time Trip-Ups – From Forbes

Franchises Versus Nonfranchised Businesses – From the free WSJ

Traditional or Roth? Which IRA Are You Eligible For? – From Gail Buckner