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When gifts are made to family members or others individuals, the donor does not receive any tax deduction. The donor's cost base will transfer to the recipient for tax purposes. Individuals may give gifts of up to $14,000 per person per year without incurring any tax liability. If a gift in excess of $14,000 is given to an individual, the donor owes the gift tax. Gifts to charity are always tax free, as is paying someone's educational expenses or medical expenses.


A husband and wife may give up to $28,000 per year per person. The 1RS considers half of the gift to be coming from each spouse. The annual gift limit has been indexed for inflation since 1999.


The value of an estate that may be left to heirs (nonspouse) without subjecting the beneficiaries to estate taxes has been constantly changing. There is an unlimited marital deduction or unified credit that allows surviving spouses to inherit the entire estate tax free. An individual's gross estate includes all of the assets owned at the time of death, including assets placed in any revocable trusts. Assets placed in an irrevocable trust are excluded from the individual's estate. Certain items will be added to the individual's gross estate, including:

• Assets transferred within three years of death.

• Annuity payouts payable to the estate or heirs.

• Life insurance.

The following are deducted from the value of the estate:

• Debts owed by the individual or estate.

• Funeral expenses.

• Charitable gifts made after death.

Assets that are left to relatives more remote than children, for example, grandchildren, may be subject to a special tax if the amount exceeds $1,000,000. This is known as generation skipping.


All broker dealers are required to withhold 31 percent of all sales proceeds if the investor has not provided a Social Security number or a tax identification number. Similarly, 31 percent of all distributions from a mutual fund will also be withheld without a Social Security number or a tax identification number.


Corporations that invest in the shares of other corporations will pay taxes only on 30 percent of the dividends it receives from those investments; 70 percent of the dividends are tax free to the corporation.


Certain items that receive beneficial tax treatment must be added back into the taxable income for some high-income earners. These items include:

• Interest on some industrial revenue bonds.

• Some stock options.

• Accelerated depreciation.

• Personal property tax on investments that do not generate income.

• Certain tax deductions passed through from direct participation programs.


U.S. investors who own securities issued in a foreign country will owe U.S. taxes on any gains or income realized. In the event that the foreign country withholds taxes, the investor may file for a credit with the IRS at tax time. Most foreign governments that withhold taxes will withhold 15 percent.

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