A certainty that accountants working in the tax field can expect every year is individuals who are uninformed about taxable income. Instead of wondering whether to report money from particular sources, the proper thinking is that every source of funds is taxable unless some specific part of the Tax Code creates an exemption. The most common way people get money that is not taxable income occurs with gifts and inheritance. Cash and other property received in these ways triggers an entirely different area of taxation from CPA study courses.
People usually mention gifts of cash when presenting personal information for income tax preparation. These are opportunities for CPAs to ask about property other than cash received as gifts. Some advice at the time of giving prepares clients for future income tax consequences when gifts are sold. Those events cause taxable gain on the difference between sales price and the seller’s basis. As explained in CPA exam review, the basis for a gift is typically the basis of the gift giver. But, an exception may apply if the market value on the gifting date is lower than the giver’s basis.
Cash received as a gift has no impact on a recipient, but creates the potential for capturing an accounting engagement to prepare a gift tax return for the giver. A further complication that accountants can untangle is structuring gifts to remain under the annual exclusion for gift tax. In some cases, this is possible by identifying gifts of property from spouses acting jointly.
Tax accountants who fully understand estate and gift tax subjects from courses for CPA licensing become key financial advisers in ongoing relationships with clients. As property is transferred from one generation to the next by inheritance, past gift tax returns contain crucial information.
Inheritance tax rules are intertwined with gift tax descriptions in CPA study material. Accountants learn that using any part of the lifetime exclusion from gift tax impacts the amount available for excluding from estate tax. Exclusion amounts commonly change, but CPAs are always prepared to discuss the basic circumstances with tax clients. Moreover, an accountant’s records of past gift tax reporting aids in handling estate tax filing upon the gift giver’s death.
Although estates pay estate taxes rather than individuals, people feel the impact of the tax because they receive less inheritance. This is the case for federal taxes on estates. Conversely, inheritance taxes imposed by states may entail assessments on the individual recipients. Therefore, accountants have some additional factors to learn about state inheritance tax after mastering the topic of federal estate tax in CPA exam study.
In addition, the education process continues each year because the tax specifics are frequently altered by new legislation. For instance, the unified credit for federal gift and estate tax is scheduled to change on January 1, 2013, from $5 million to $1 million. Also, the maximum federal estate tax rate is set is set to increase from 35 percent to 55 percent.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.