A unified tax credit lets someone offset estate or gift taxes incurred within a given period, reducing the amount of tax that needs to be paid. This helps to lessen the financial liability that normally comes along with transfers of property. A single credit is available for both types of taxes, so numerous gifts and a large inheritance can use it up. The exact amount can change from one year to another, so a professional accountant should be consulted by anyone who needs assistance with filing.
How It Works
While tax laws generally seem fairly complex, a unified tax credit is rather simple. Large gifts or estates are usually taxed by the government. That tax may be imposed on the gift giver or recipient. By using a unified tax credit, the taxpayer can significantly reduce the amount that needs to be paid, sometimes eliminating it completely. This is usually a lifetime value, however, so a decrease in one year reduces the total amount a person qualifies for each year afterward.
Currently, the unified tax credit allows payers to add up any estate or gift taxes that are owed during the year and offset at least a portion of the total due. As with similar types of credits, it is necessary to document the value of the assets, properly assess the amount due, and then determine what reductions are allowed. Different forms are used for these filings, but as long as a person has remaining credit for gift taxes, he or she must apply it toward that amount.
Only certain types of gifts can be taxed. Donations to political campaigns or non-profit charities, for example, do not usually qualify. Gifts must also be of a certain value before any fees are placed upon them. The cutoff was $13,000 US Dollars (USD) in 2012 for example, though this is likely to change in the future.
Anyone giving a gift less than that amount does not have to worry about paying taxes on it. Someone giving a gift of $20,000 USD would ignore the first $13,000 USD and have to pay on the remaining $7,000 USD. Once he or she determined the total owed, the gift-giver would deduct it from the unified tax credit and then pay any remaining amount.
The unified tax credit works in much the same way for a person's estate after dying. The amount owed depends on the total worth of the estate: if it is below a certain value, then nothing is due. Any amount beyond that cutoff can warrant taxes, which are then deducted from the credit to determine what needs to be paid.
Taxpayers should seek the counsel of an accountant who is well-versed in current codes. A professional of this type is usually aware of any and all changes to existing laws that can impact the eligibility of a given asset. Tax laws change and are revised on a fairly regular basis, so an exemption from two years ago may no longer be valid. Professional advice about the unified tax credit can ensure someone pays what is necessary and does not have to deal with future issues regarding unpaid amounts.