Cleveland Brown gave gifts to the following recipients this

Cleveland Brown gave gifts to the following recipients this year:

A diamond ring to his wife, Donna, valued at $380,041, for their anniversary.

A 2018 Buick Encore, worth $37,630 to his step-daughter, Roberta as a birthday present.

$65,000 cash to his son, Cleveland, Jr., for his birthday.

$47,000 cash to his step-son, Rollo, for his college graduation.

$15,000 each to his closest friends: Tim, Arianna, Lester, Kendra, Holt, Terry, Lloyd, and Lydia.

$145,000 each to his parents, Levar and Cookie.

$77,100 to Long Island University, his alma mater. (Note: Charitable Contributions are fully deductible net of the annual exclusion.)

In addition, he had previously given taxable gifts in previous years amounting to $690,057, in which he had previously paid $177,610 in gift taxes, and claimed previous unified credits amounting to $113,054.

Required: Calculate the following:

1) Cleveland’s net taxable gifts this year

2) His tax base

3) The tax liability on his tax base

4) The tax liability on his prior gifts at current rates

5) His current year’s tax liability

6) His remaining unified credit, if any

Solution

Current Year Diamond Ring to Wife 380041 Tax free Exempted Buick Encore to step daughter 37630 -15000 22630 Cash to Son 65000 -15000 50000 Cash to Step Son 47000 -15000 32000 Cash to frnds(15000*8) 120000 -120000 0 Cash to Parents(145000*2) 290000 -30000 260000 Long Island University 77100 Exempted Exempted 1016771 364630 Previous Year Previous year gifts 690057 Gift Tax paid 117610 Credits claimed 113054 The gift to spouse is tax free assuming she is citizen of US and cash paid to Long Island University is donation which is exempted and not to be considered as gifts. The net taxable gifts this year Gift Exemption Net taxable gifts Buick Encore to step daughter 37630 -15000 22630 Cash to Son 65000 -15000 50000 Cash to Step Son 47000 -15000 32000 Cash to frnds(15000*8) 120000 -120000 0 Cash to Parents(145000*2) 290000 -30000 260000 559630 Total Net taxable gifts 364630 Less : Unified credits -113054 Total gifts liable to tax 251576 Since the lifetime exemption that is unified credits is utilise the gift tax would be taxed at 40% Current Tax liability 251576*40% 100630.4 Tax liability at 40% for previous gifts 690057*40% 276022.8 Since the whole of unified credit is utilised the balance would be Nil