Gift Tax Exclusion

There are really two exclusions: the lifetime exclusion of $5,340,000 and the annual exclusion of $14,000. For example, you can give any number of $14,000 gifts to different individuals in a year and you would not affect your lifetime exclusion nor would you need to file a gift tax return form 709. If you give over $14,000 you reduce your lifetime exclusion and need a gift tax return prepared. For example, if you give a car costing $30,000 to your daughter in 2014, your reportable taxable gift would be $16,000 because you reduce the gift by the annual exclusion and your lifetime exclusion would then be $16,000 less. You would not owe a gift tax until you exceeded the lifetime exclusion amount. Taxable gifts also reduce your estate tax exclusion of $5,340,000 which equals the lifetime gift tax exclusion.

Self Rental

If you have a business and also own your own office, then you pay rent to yourself. Generally you never want to put property that may appreciate in value in a corporation because you would pay double tax upon the sale of the property so that is why it is a good strategy to rent to yourself. What rent to charge though becomes the question. I think the best outcome is a break even because net rent income is considered non passive income but a net loss is passive. The IRS is playing heads I win, tails you lose. Passive losses are only deductible against passive income. Passive rental losses are suspended until you sell the property.

Late Payment Penalty

The IRS charges you a late payment penalty along with interest if you owe tax after April 15 on individual returns. You can extend the time to file your return but not the time to pay the tax due. The late payment penalty is .5% of the unpaid balance for each month or part of a month up to a maximum of 25%. If you agree to an installment arrangement with the IRS, then the penalty is half the usual rate.

Does your child have to file a tax return?

The requirements for filing include the following rules for dependents. Returns must be filed if your child has unearned income such as interest and dividends of over $1,000 or earned income such as wages greater than $6,100.  You may still want to file if you want to recover any tax withholding on wages less than $6,100.