In: Accounting
This year Noah transferred $7 million to an irrevocable trust
established for the benefit of his niece. The trustee
is directed to accumulate income for the next five years before
distributing the before distributing the trust corpus to
Noah’s niece. In past years Noah has made taxable gifts of $6
million and used an applicable credit on an exemption
equivalent of $5 million. What amount of gift tax, if any, must
Noah remit?
Please show work if possible! thanks
Answer:-
Annual gift tax exemption =$15000.
If you give gift more than $15000, the excess amount will be counted in the lifetime exclusion
In this case $7 million minus $15000 will be included in the lifetime exclusion
Lifetime exclusion in 2020 is $11.58 million
Hence lifetime taxable gift above $11.58 million will be taxed.
Hence amount of gift to be taxed =$5million+$7 million -$15000-$11.58 million=$420000-$15000=$415,000
Gift tax rate :
Up to $10,000-----10%
$10,001-$20,000-----20%
$20,001 to $40,000----22%
$40,001 to $60,000----24%
$60,001to $80,000-----26%
$80,001 to $100,000----28%
$100,001 to $150,000 ----30%
$150,001 to $250,000----32%
$250,001 to $500,000---34%
Calculation of gift tax is given below:
up to $10,000 | $1,000 | (10000*10%) |
$10001 to $20,000 | $2,000 | (20000-10000)*20% |
$20,001 to $40,000 | $4,400 | (40000-20000)*22% |
$40,001 to $60,000 | $4,800 | (60000-40000)*24% |
$60,001to $80,000 | $5,200 | (80000-60000)*26% |
$80,001 to $100,000 | $5,600 | (100000-80000)*28% |
$100,001 to $150,000 | $15,000 | (150000-100000)*30% |
$150,001 to $250,000 | $32,000 | (250000-150000)*32% |
$250,001 to $415,000 | $52,800 | (415000-250000)*34% |
TOTAL GIFT TAX PAYABLE $122,800