Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Do I Need to Worry About Gift Taxes?

Date Published Feb 2009 San Francisco Business Times

In the countdown to April 15, many people rushing to prepare their individual income tax returns will overlook another important tax return that is due the same day. They will overlook the filing of a Form 709 which must be filed with the IRS reporting taxable gifts made during the prior year. Filing to file a gift tax return can result in an expensive oversight.

For example, suppose a generous woman decides to make considerable gifts to her children and grandchildren during her lifetime. However, she fails to file gift tax returns with the IRS reporting the gifts made to children and grandchildren. Now, suppose she dies with an estate worth approximately $5 million. If the IRS were to audit her estate and discovers that the generous women failed to file gift tax returns during her lifetime, the IRS may assess significant back taxes, penalties, and interest against the estate of the generous women. The back taxes, penalties, and interest may eat up most of her family’s inheritance. To avoid a similar nightmare, we hope this article will provide our readers with a basic understanding of gift taxes.

Contrary to common misconceptions, the donor of a gift is responsible for paying any gift tax due on the transfer, not the recipient of the gift. Gift taxes are cumulative and based on how much you give away during your lifetime. The top rate for gift tax is approximately 35 percent. You can give up to $13,000 worth of gifts every year to as many people as you like, gift-tax free and without reporting the gift. Anything above this “annual exclusion” must be reported. Whether you will owe a gift tax depends on whether you have used up your lifetime gift exemption. Currently, taxpayers are allowed to gift $1 million during their lifetime. The IRS requires taxpayers to file gift tax returns to determine how much of the exemption has been used up. Spouses can pool their annual exclusions for a gift up to $26,000. This practice is known as “gift splitting.” However, each spouse is still required to file a gift tax return. In order to avoid the filing requirement, each spouse can make out a separate check for $13,000, rather than writing one check for the entire $26,000 amount. However, payments to service providers such as a doctor, school, and insurance companies are exempt from the above mentioned rules.

Filing gift tax returns is the only way to start the clock ticking on the three year statute of limitations on audits for gift taxes with the IRS. (The statute of limitations is six years if the gift’s value is understated by twenty-five percent of more). However, you should keep the gift tax returns indefinitely for your own protection. Because the gift tax rules are complex and intertwined with the estate tax rules careful consideration must be given to a wide variety of factors, as well as, personal preferences in making good decisions.

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So I Just Lost My Job. Can I Now Deduct My Job Hunting Expenses For Income Tax Purposes?

Article by Steve Moskowitz, J.D., LLM., Senior Partner and co-author Anthony Dsiodi, J.D., LLM., Senior Associate
Date Published Jan 2009 San Francisco Business Times

In these difficult economic times countless Americans have been forced to look for a new job. Many of our readers will be surprised to learn that their job-hunting expenses may be deductible for income tax purposes. However there are two limitations our readers should be aware of before claiming a deduction for job-hunting expenses on their tax returns. First, the expense must be associated in looking for a new job in your present line of work. But, the deduction may be allowable even if you do not find a new job. However, the associated expense of looking for a new job in a new trade or business, even if a job is found, is not deductible. For example, if an attorney sought a position as an elementary school teacher, his associated job expenses would not be deductible. On the other hand, if an attorney decided to seek a position in a law firm, his job-hunting expenses may be deductible.

The IRS has permitted deductions for the following job related expenses: 1) fees paid to employment agencies; 2) cost of mailing resumes; 3) legal fees related to reviewing an employment contract; 4) transportation costs to job interviews; 5) fifty percent of meals and entertainment expenses directly related to job search; and 6) out of town travel expenses including meals, lodging, and transportation, if the trip is primarily to look for a new job.

If you claim a job-hunting expense, you should be prepared to substantiate your expenses in the event of an IRS audit. As such, you should keep all of the receipts, which demonstrates you’re out of pocket expenses. In addition, you should keep a log or diary detailing your interviews, expenses, and entertainment costs. When claiming deductions on a tax return, there is no such thing as having too many logs and documentation. Keep in mind, if the IRS audits your tax return and questions your job hunting expenses, your receipts and logs will be the only things they review to support your deduction.

Second, our readers will need to understanding that job hunting expenses are classified as a so-called “below the line” deduction. This means that that job expenses are classified as an itemized deduction. An itemized deduction is limited to the extent that it exceeds more than two percent of a taxpayer’s adjusted gross income. In other words, job-hunting expenses will only be likely deductible only to the extent it totals more than two percent of your adjusted gross income. In addition, there are numerous other limitations, such as the Alternative Minimum Tax, which may reduce or entirely eliminate the deduction. Consequently, it is important that you consult with your tax professional before claiming a deduction for your job-hunting expenses.

For more information or if you have questions please use our contact form.