How many times does your income get taxed?

[BerettaCougar]

So we pay income tax, it comes directly out of our paychecks.
We have no say where the money goes, and what it will help pay for.

Then when we go to spend the remaining amount we get taxed again.
Same thing, we have no say where the money goes.

Income my grandfather made over his life was taxed, when his estate was distributed to the family as part of his living will, the gov. taxed us on that.
These are things he ALREADY paid taxes on, like his property taxes for both of his properties. The money he had stashed away in his savings all came from decades of working manual labor, paying taxes all along.

I just don't see how my father can work for his income, get taxed on it, then when he gives me money for the down payment of my first house I have to pay a gift tax on the same money that has already been taxed!

Maybe someone can fill me in on this subject.

 

[JuanCarlos]

Oh heck, you're lucky if your money only gets taxed twice. Often it's more like two, three, or even dozens upon dozens of times.

I just don't see how my father can work for his income, get taxed on it, then when he gives me money for the down payment of my first house I have to pay a gift tax on the same money that has already been taxed!

I always thought that pretty significant gifts could be transferred annually without being taxed...something like $10K per giver to each recipient. Meaning that a married couple (such as my parents) could transfer up to $40K to us (my wife and I) in a single year without being taxed.

Not that this addresses the overall issue you're talking about...just that I thought it was fairly easy to move pretty significant amounts of money without being taxed.

 

[rgitzlaff]

yeah, you shouldn't have to pay a gift tax. My parents gave me money for my first house also. Wasn't taxed.

 

[BerettaCougar]

I havent paid anything yet, but according to the law, any gift of $10k or more needs to be taxed.

 

[JuanCarlos]

I havent paid anything yet, but according to the law, any gift of $10k or more needs to be taxed.

I poked around, and it appears it's actually $12K now. But like I said, that amount is per giver per recipient. Which means that if either you or your father are still married, it can increase substantially.

 

[BerettaCougar]

Even if it's $12k I'd have to pay taxes on it.
Question for you is, if it was a check from my fathers bank with only his name on the account, that has already been cleared. I gotta pay?

And if so, what rate?

 

[JuanCarlos]

Even if it's $12k I'd have to pay taxes on it.
Question for you is, if it was a check from my fathers bank with only his name on the account, that has already been cleared. I gotta pay?

And if so, what rate?

You're asking questions that are above my head. I believe that it's at the estate tax rate (which is pretty high, like 30% or something obscene like that...basically a while back the gift tax and estate tax were pretty much combined). I'm not sure whether it's the excess or the total that's taxed, either.

Though note that if you guys want, he can apply a portion of his estate tax exemption (it's like $2M, I believe) to the portion of this gift in excess of $12K. Which, if he doesn't intend to leave an estate worth more than $2 million (or whatever the exemption is) would probably be the way to go...and quite honestly depending on your financial situation would probably be the way to go anyway.

Though next time if possible (if either of you are married) try to make sure you take advantage of multiple givers/recipients if possible.

 

[gc70]

Here are Gift Tax Questions and Answers from the IRS.

Q: Who pays the gift tax?

The donor is generally responsible for paying the gift tax.

Q: How many annual exclusions are available?

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002, 2003, 2004 or 2005 and $12,000 in 2006 or 2007, the annual exclusion applies to each gift.

Q: What if my spouse and I want to give away property that we own together?

You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2007).


The Instructions for Form 709 show tax rates from 18% (over $10,000) to 46% (over $2,000,000).

 

[BoringAccountant]

Oh the joys of the IRS and the federal government.

I would be happy to try and answer some tax questions, but let me preface it with this...with the proper tax planning, meaning, if an older person knows that in the very near future they will be passing away, it is ENTIRELY possible to avoid the estate and death tax, using the proper gifts before hand. Every person has a pool if you would of the amount they are allowed to gift in their lifetime...$1,000,000 plus $12,000 per year to as many donees as desired. Then when you die, you are allowed to "give" or bestow $1,500,000 less the amounts previouly gifted in your lifetime. Please know that this is a facts and circumstances thing, some ways it does not work as easy at this may sound.

I would advise you to check with a tax accountant near you, chances are you can save $$$ by getting tax advice rather than just paying the gift tax.

 

[JuanCarlos]

Good info, gc70.

Also, looking at the wikipedia entry on the Gift Tax, it appears that there is also some form of credit available even if he does end up paying the tax rather than using a portion of his lifetime exemption.

One thing most people don't realize when they rail against the estate/gift tax is that really, for anybody not leaving obscene amounts of money to their heirs, it's pretty easy to get around. I thought I read somewhere that something on the order of 5% or 10% of Americans will ever actually pay it (as in, at all), unless they simply fail to take advantage of even the most basic exemptions available.

EDIT: Alternately, what BA said. If you're not in the "private-jet" levels of wealth and you're paying the gift/estate tax, you're likely "doing it wrong."

EDIT: I actually found interesting some poll data I read that many more Americans think they will someday pay the "death tax" than actually, you know, will. It's one of those odd political manipulation things; certain interests have convinced people that Uncle Sam is going to take everything they have when they die, leaving nothing to their children...and unless filling out a couple forms here and there is simply more than you can bear, it's simply not true. This doesn't mean you're in any way "wrong" if you disagree with the Estate Tax/Gift Tax on moral grounds, mind you. It's a compelling argument, and while I come down in favor of an estate tax (with hefty exemptions) I can entirely understand it. Just that a lot of people also want to see it done away with out of a perceived self-interest, when in actuality none exists.

EDIT: And while, in the OP's instance, it might seem like one shouldn't have to go through this kind of trouble and deal with all these regulations to avoid such a tax...well, really it's not that hard. Especially not in the internet age. You punch "wiki gift tax" into Google, read over the wikipedia entry. Realize that, "hey, we (meaning he) probably don't actually have to pay tax on this." Follow links to IRS pages, see relevant FAQs, find relevant forms, done. It's the kind of thing that you could probably realize, figure out, and more or less take care of in like an afternoon. I'd recommend paying a professional to do it, mind you...but there's no reason that the OP's situation should be beyond the comprehension and ability of the average high school graduate with internet access.

 

[gc70]

JuanCarlos is correct about deferring gift taxes into estate taxes.

Here are Estate Tax Questions and Answers from the IRS.

Q: What is the Estate Tax?

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death ...

... the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2% of all Americans.

 

[pitz96]

Taxes--yikes! The IRS rules and regs. are so complex its insane. I'd go for either a flat tax or a pure consumption tax just to simplify and eliminate the byzantine system we have to slog through today, even if I had to pay a bit more.

Also crazy is the limit on Social Security deductions. Someone making the limit for deductions of $90,000 or so pays the same as someone making, say, $100,000,000, like a hedge fund manager. No wonder SS is going broke. People cry that it would be unfair for the super rich to pay into SS on their whole incomes because of SS payout caps they's be eligible for. yeah right. and its real fair for them to only pay on the first $90,000 or so out of millions a year in income.

 

[JuanCarlos]

Also crazy is the limit on Social Security deductions. Someone making the limit for deductions of $90,000 or so pays the same as someone making, say, $100,000,000, like a hedge fund manager. No wonder SS is going broke. People cry that it would be unfair for the super rich to pay into SS on their whole incomes because of SS payout caps they's be eligible for. yeah right. and its real fair for them to only pay on the first $90,000 or so out of millions a year in income.

Actually, it is...since they pull no more out than somebody making $90K. This is part of why Social Security is broken; treating SS funds as general funds. It should be entirely separate.

 

[homefires]

How about paying taxes on your Social Security money you receive? Double taxation!

On top of the Income Tax, You pay some form of other taxes on everything you purchase. Gas, Food , Water, Sewer, Schools whether you have kids or not! It's endless.

I make so little money, I pay No Income tax! They still get the money from me with these means.

 

[BerettaCougar]

homefries, that's the point I was trying to get at.

The same dollar get's taxed so many times.

Example:

My income gets taxed (Federal tax) at 25%, then when I spend a dollar locally I spend another 6% of that dollar in taxes.
So one dollar is really $0.69...

And that's not counting social security, and medicare.

Another part of this that really bothers me is that fact that I don't have a say where my taxes go.

If we did have a say, I bet we wouldn't see as much crap from those that depend on our money for their living.

 

[Ledbetter]

Each dollar is taxed until it is gone

You make it. You pay tax on it. You spend it, the recipient pays tax on it. He or she spends it, and ... you get the idea.

 

[amprecon]

Well, about two-hundred and thirty some years ago, we had this Boston Tea Party thingy goin' on. It wasn't about how much we were being taxed, but who was getting the revenues and knew it was going straight into the kings coffers.

Today, we don't give a hoot how much we're being taxed and know who's getting the revenues but don't know where it's getting spent.

Well, I guess since we have it so much better than they did it back then, it would be just downright selfish to complain about 50% of our earnings being stolen from us daily. Does anyone actually think that part of our "high" pay is to compensate for the taxes we have to pay.......errr, I mean which gets confiscated?

 

[Waitone]

I second the advice to talk to someone who lives in the world of taxes. Tax laws are insanely complicated. If you screw up I can guarantee you your error will always favor goobermint. Know the tax code and you can save money, lots of money. Get arrogant and it will cost you big time.