We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
We did inheritances yesterday, so it seems fitting to review gift taxes today.
My impression is that gift taxes are largely dodged in the US today, unless they involve bank transfers of assets, or deeds. It is certainly not unusual for older folks to hand over jewelry, gold coins, artwork, etc. to their kids.
I do not understand why gift taxes exist in the US, but I am confident that readers can provide me with the rationale.
yup, that's the main reason why.
There's a 50% estate tax (25% for spouses and children) here (thought you had it bad in the US?).
To prevent the elderly gifting their possessions before they die, any gifts over 5000 Euro total per year you receive are taxed as income, which for many people would mean they get those gifts taxed at more than 50%.
And the tax agency openly brags about that being to prevent people gifting "too much" to "escape the estate tax".
Giving "gifts" to family members was a way to dodge income, sales, estate and property taxes. For example, you run a business and give a "gift" of $50,000 to your son, who then "helps" you with various jobs. He's functionally an employee of your business, but he's not paying income tax (and you aren't paying payroll taxes for him). Likewise, gifts of property avoid sales taxes (under their various guises, e.g. title fees, stamp tax, and so on) and can be a way to dodge capital gains (or, alternately, to hide losses).
Unrestricted "gifts" could also be used to launder money, avoid legal garnishments and liens, and escape from "net worth" tax prosecution. Sadly, the law has to be written assuming the worst about people in these cases.
As for people who gift jewelry, etc. to their kids: as long as nobody looks, it'll be fine. But if somebody does look-- say, as a disputed inheritance or ugly divorce/child support case comes up-- then things can get WAYYY ugly. For example, was the jewelry actually a gift, or stolen from the parents? The one holding the goods can't prove legitimate title, and if the tax wasn't paid either... remember, in civil court, 51% proof is enough, and there's no presumption of innocence or right to remain silent!
My advice: stay on the up-and-up legally, even if it costs you tax. If it's worth anything close to the IRS limit, get a lawyer involved and do it right, and if you owe taxes on the transaction then pay them when they're due. These inheritance fights blow up quick and go UGLY fast. It's not worth it!
Estate taxes, Gift taxes, Exit taxes (on those who forgo citizenship), etc are gov's declaration that you own nothing, all assets are gov property and you only have such allowance to use gov property under circumstances as they allow. Were you to really, truly own anything you could do with it what you wished. This applies also to income taxes where we are unique in having to pay US gov taxes on income earned abroad, i.e. the gov actually owns you and takes what it wants (your tax rate) based upon your earnings, not just those earned in this country. Only the likes of Cuba, N Korea & the former USSR had exit taxes. Mostly nations let you take your stuff with you if you forgo citizenship.
There are two reasons for gift taxes: The phony reason is that it isn't fair that the "rich" can give their money to their family and friends and thus hold on to wealth from generation to generation. This resonates with the low information voters and the incessantly offended who through the wonders of democracy vote to take this wealth. The real reason for gift taxes and most taxes is the government wants more; more money, more power, more then it has and there is no end to this hunger. So between socialist rent seeking politicians politicians and ignorant voters we get taxed twice on our money because they can.
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