Welcome Guest. Register Now!  

LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 06-19-2017, 09:22 AM
Junior Member
Join Date: Jun 2017
Posts: 1
GST (generation-skipping tax) hypothetical calculation


Hypothetical gift / generation-skipping tax calculation question:

- I'm going to gift 20k to my grandchild this year. This is the only gift to this grandchild this year. This gift is a direct skip.
- Assume I've already exhausted my total lifetime gift and GST exemptions (e.g., say I gifted 5.6m to grandchild #2 in the previous year).
- Assume I have no DSUE, no foreign credit, no weirdness with 1976 or before, etc.
- Also assume I'm unmarried, so no spouse with whom to split the gift.

Here's what I got using the form 709:

Form 709, part 1 - No / NA for all parts here
(Now, completing other parts of the return, then returning to 709 part 2 below)

Sched A, part 2 (direct skips), col H total: 20k
(We'll come back to sched A part 4 below)

Sched B - I think I end up with >5.5m on line 3 for the previous year's grandchild #2 gift. (Nothing else special?)

Sched C - NA

Sched D, part 1:
Col B: 20k, Col C: 14k, Col D: 6k (using the 14k annual exclusion amount per recipient)

Sched D, part 2: not using any GST exemption for this year's gift

Sched D, part 3: col B: 6k, col G: 0.4, col H: 6000 * 0.4 = 2400
Sched D, part 3, total GSTT: 2400

(now completing sched A part 4)
Sched A part 4:
line 1: 20k
line 2: 14k
line 3: 6k

lines 4-8: 0 (no deductinos)
line 9: 6000
line 10: 2400
line 11: 8400

(now completing 709 main form)
709, part 2:
line 1: 8400
lines 2-5: basically accounting for previous year's gifts. Both numbers are over 1m, so we're just taking the $8400 difference for this year.
line 6: 3360 (= 0.4 * 8400)
lines 7-14: 0 (no credits)
line 15: 3360
line 16: 2400
line 17: 5760


This calculation suggests that I owe $5760 on the $6000 of the nonexempt portion of the gift! That's a 96% effective tax rate. How can that be possible?

In what should be the equivalent situation, imagine (after exclusions):
If I gift 6k to my son, then I pay 40%.
Son gifts remainder to his grandson, paying 40%.

The total left over should be 0.6 * 0.6 * 6 = 0.36 * 6 = 2160, for an effective tax rate of 3.84/6 = 64%.

Did I make a mistake?!

Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
How to calculate Generation Skipping Transfer Tax? rom299 Estate Planning 1 02-14-2016 11:09 AM
Basic Cost Calculation - Need Your Help JPHAM2013 Capital Gains 2 04-09-2014 12:08 AM
income tax calculation pinakisbp Capital Gains 1 04-21-2013 03:29 AM
Current Depreciation Calculation smorr021 S-Corporation 1 04-13-2013 10:40 PM
fraudulent basis calculation? aprecision S-Corporation 0 03-20-2012 02:29 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 » Income
 » IRA/Sep
 » Medical
 » Payroll
Forum for CPAs
Financial Planning