Tax Class Basics About Gift Taxes
Posted on April 27, 2011 | Tax Studies.
A US government tax is normally imposed on any large gift, which a Registered Tax Return Preparer must advise a taxpayer about owing. The gift is not reported by the recipient as taxable income. Rather, a donor reports the amount on a gift tax return and pays any taxes due.
The purpose of the gift tax is to avoid permitting a donor to give away property right before death in order to avoid estate tax. Gift tax is therefore part of the law dealing with estate tax. A RTRP should advise a taxpayer about a reportable gift even if the tax professional only prepares income tax returns. This is one of the ethical standards requiring tax preparers to assist individuals in not underreporting taxable transactions.
The same lifetime exclusion for the estate tax applies to gift tax. That is, estates or gifts below a total lifetime value do not incur the tax. This amount is subject to change by statute. It is $5,000,000 beginning with the 2011 tax year. Therefore, anyone who dies that year may have excluded up to $5,000,000 of combined gifts and estate value from the tax.
Educational training for the tax preparer exam includes information about taxable gifts. Gifts are not taxable in many cases. There is a tax-free exclusion representing the amount that one person can give away annually to anyone else. This exclusion is $13,000 for the 2010 tax year but is adjusted each year for the cost-of-living.
The exclusion is not limited to family members. It applies to all gifts. In addition, married individuals can agree to gift splitting. This allows them to jointly give twice the annual exclusion to one person.
When taking a tax class, you will find examples for application of the gift tax. A possible scenario involves a gift of $25,000. The $12,000 amount over the annual exclusion is reportable on a gift tax return. However, it can be excluded from a tax assessment if part of the lifetime exclusion is applied.
In addition, if the individual is married and the spouse agrees to gift splitting, they can each report gifts of $12,500 that both fall under the annual exclusion. Your tax courses teach you how gift tax returns are used to report gift splitting.
The gift tax is applicable to almost every type of gift. However, there are some exceptions. These include gifts to spouses, political organizations, amounts paid directly to providers of healthcare or education.
Amending Tax Returns After Submission
Posted on April 25, 2011 | Tax Studies.
Submitting tax returns by the deadline date always comes with a sigh of relief to many tax payers. However, every now and then, just after making your submission, you may discover that you have made an error on your returns. At times, such errors may include a deduction that could have reduced your taxes or an income you did not include in the returns.
For starters, you cannot correct the tax returns after submission – you carved out your signature under the penalties of perjury declaring that the information was true and final. However, the IRS provides an opportunity to make an amendment to the tax returns submitted. Amendments and corrections may seem more less the same. However, an amendment assumes that information provided initially was true to begin with but you are introducing some new information to affect the returns.
If you find yourself in such a situation where you need to make an amendment, there are various options that you can pursue to handle the situation. These options are explained below:
Wait for the IRS to Complete Processing
If the returns were erroneous due to information you did not have at the time of submitting them, then you are legally not obliged to make an amendment. In other words, if reports of incomes made arrived a day or two after you had made the returns and you were unaware of such incomes, you need not file an amendment.
Other errors that will not require an amendment are mathematical errors. The IRS will make the corrections to such errors. This includes wrong entries made on the form. However, if such errors amount to more tax payments, they will add the due amount in your tax account and inform you about such dues. Other errors that the IRS will normally overlook include an unattached schedule, an omitted Form W-2, grammatical errors on the form, and other small omissions and inclusions. In such cases, it is best to wait for the IRS to complete processing the returns before making a decision on whether to file an amendment. If the IRS deems an omitted document as important, they will simply contact you and ask you to mail it to them.
Amendment of Fundamental Information
If on the other hand you were aware of fundamental information that you did not include in your tax returns, then you should make an amendment at the earliest time possible. You could have made an income in a given year but may have forgotten to include it in the schedule. As soon as you discover such an error, you should provide an amendment and pay any taxes due at the earliest time possible to avoid an IRS audit that may result in penalties and interests.
Amendments for Tax-Beneficial Corrections
If the information omitted from the tax returns would result in lesser taxes paid, then though filing an amendment is optional, you will want to file the amendment to reduce your due taxes or claim a refund.
To make an amendment of your tax returns, you will need to fill out Form 1040X indicating the amendment. The form can be downloaded from the IRS website. However, any refunds due after an amendment will take much longer to process as such amendments are manually reviewed before the refund is released.