Estate Plan Essay

As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the

1) Section 351: Since Individual will be in control (80%+ ownership) of future corporation, he will not incur a taxable event

T, an individual taxpayer, plans to incorporate his farming and ranching activities, currently operated as a sole proprietorship. His primary purpose of incorporating is to transfer a portion of his ownership in land to his son and daughter. T believes that gifts of stock rather than land will keep his business intact. Included in the property he plans to transfer is machinery purchased two years earlier.

Although the grantor trust rules generally address the taxability of trust income to the grantor, in some situations the Clifford trust doctrine has been extended to tax the income of a trust to someone other than the grantor. This happens when the powers granted enable a beneficiary to vest the corpus or income in the beneficiary. The seminal case of Mallinckrodt v. Nunan held that income of a trust was taxable to a beneficiary

1) The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.

Decedent made a transfer within 3 years of death. Under Section 2035(a), nothing is included in Decedent’s gross estate, because it’s a cash gift. However, under Section 2035(b), the amount of the gross estate shall be increased by the amount of any tax paid on any gift made by the decedent during the 3-year period ending on the date of the decedent’s death. So the amount of gift tax of this gift the decedent paid is included in his gross estate.

* Gift Tax: living transfer of property; $14,000/yr/donee exclusion ($28,000 if joint), unlimited marital & charity deduction, once in a lifetime exemption for gifts & estate of $5,340,000

The alternative minimum tax (AMT) may apply to a trust only in the first tax year.

In the event of the retirement of a partner with a disproportionate distribution, Code Section 751(b) provides guidance. In order for Section 751(b) to apply, the partnership must have both Section 751 and non-section 751 property. Section 751 assets include unrealized receivables and substantially appreciated inventory. Because the inventory has not appreciated by 120%, of its adjusted basis, the only Section 751 property that Boxes of Books has is its receivables. Because Bobby’s distribution of $845,000 exceeds his 35% share of $840,000, he will recognize a guaranteed payment of $5,000 under Section 736(a). Section 736(a) does not apply to the receivables

Part IV: Discuss, in detail, how this entity is taxed (if at all) and what filing requirements it has with the IRS. An LLP has pass-through taxation and the income is reported on each partner’s personal tax returns, avoiding any federal tax on profits. (Code Sec. 702) The LLP will be taxed this way by default; however the option to be taxed as a corporation is also available. Every partnership must file an annual return regardless of the amount of its net income or its net loss in its operations. (Code Sec. 701; Reg. §1.701-1; Code Sec. 6031). Form 1065 must be filed every year by the 15th of April.

The American Taxpayer Relief Act of 2012 created a combined estate and gift tax rate of 40% while raising the estate tax exemption to $5.43 million in 2015. The gift exclusion stays at $14,000 in 2015. These changes generate some estate-planning benefits that most people haven’t yet realize. For example, many wealthy people didn 't bother trying to minimize capital gains in the past because the lower tax rate of 15% was better than paying 50% in estate taxes. Now people can benefit by choosing which assets they keep until death more carefully. Appreciated assets can be held until death and might fall within the $5.43 million exemption. This could be especially important when realizing capital gains could be subject to a higher, nearly 24%

Assuming no other gifts have been previously made, Ann and Bob can use the unified credit toward part of their gift. Ann and Bob can combine their exclusion and give each donee $28M each year. If Ann and Bob give any amount to one individual over $28M in one year, as the donnee, Ann and Bob will be required to file a federal gift tax return. The excess above the annual exclusion results in the donee incurring the gift tax and offsets the life exclusion of $5.34M per donee. If they give each child and grandchild $1MM, that equals $22MM in gifts. Regardless of whether or not Ann and Bob split the gift, they have exceeded the exemption equivalent of $5.43MM per donee. Therefore, the tentative tax is $345,800 plus 40% of the excess over $1MM.

Our company has been providing their employees with a pension plan for many years. However, these benefits plans have to be reviewed and possibly revised after the recent acquisition of XYZ Company. Through the use of a funding agency, payments are invested so that periodic payments can be made to the employee during retirement. Defined contribution and defined benefit are the two most common types of pension plans.

2010 Corporate Partnership Estate and Gift Tax with H&R Block TaxCut 4e Pratt Kulsrud Test Bank

Planning for retirement should not be based on Social Security alone, but rather by saving portions of personal earned wages and putting finances into long-term investments. Depending on Social Security as the only income after retiring is an unsafe and undependable way to prepare for retirement. People who contribute to Social Security are mandatorily putting money into the Social Security Reserve; this money is used for older generations that will file for these benefits before the younger people working, in the early 21 century, ever receive a chance. Money controlled by other’s hands will never be a guarantee for a secure future, yet money saved by an individual to put toward personal goals will reward greatly. By taking the time to