The year 2010 is a unique year for estate planning. Owing to the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, which gradually reduced the rates of estate tax over the years, there are no estate tax and generation skipping tax for the year 2010. Gift tax, the third and last tax in the unified transfer tax system, is only 35 percent and is the lowest since 1934 when the rate was 33.5 percent. Financial advisers across the U.S are urging their clients to make use of this unique opportunity; no estate and generation skipping tax for the calendar year, while also having the lowest rates for gift tax in 2010. Here, we take a look at the gift tax and reporting requirements necessary for 2010.
Laws Governing Gift Tax and Other Transfer Taxes
According to IRS, a person can gift up to $13,000 a year to any number of people without incurring a gift tax. This is in addition to a lifetime gift tax exemption of $1 million. So a person can gift $1 million to his heirs and continue to gift $13,000 a year until his death.Couples can gift up to $26,000 jointly. Gifting is thus an effective estate tax planning strategy because it reduces the value of the taxable estate. There is a catch, however. If a person dies within three years of making the gift, it will be included in the value of the estate.
Gift Tax Reporting Requirements
Most people will agree that there is great joy in giving gifts to loved ones. Gifting is also a valuable estate planning tool and combined with the low rates of gift tax in 2010, it is going to be especially sweet for both the donor and the recipient.
- Instructions for filing Form 709 by IRS, https://www.irs.gov/instructions/i709/index.html.
- Publication 950, Introduction to Estate and Gift taxes, https://www.irs.gov/publications/p950/index.html.
- Frequently asked questions on gift taxes, https://www.irs.gov/businesses/small/article/0,,id=108139,00.html
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