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Don’t include the IRS on your gift list

January 18, 2017 by Reynolds & Rowella Leave a Comment

With the fall tax filing deadlines behind us, we like to begin reaching out to our clients to offer assistance with year-end tax planning. Tax planning for our individual clients encompasses a broad range of issues depending on the complexity of a client’s financial picture. We not only look at the current tax year, we also evaluate how actions taken now or prior to year-end will improve their tax situation in both the short and long-term. Planning allows us to identify specific areas where we can help our clients the most and provide true value-added services. Some of the more common areas we like to discuss with our clients include:

Suppose a relative gives you an expensive painting. Several years later, your relative dies and you decide to sell the painting. Your accountant says you’ll owe capital gain tax on the sale, and asks for your basis in order to reduce the amount on which you’ll pay tax. What’s your answer?

When you sell property received as a gift, the general rule is that your basis is the donor’s cost basis. If you sell at a loss, your basis is the lower of the donor’s basis or the fair market value on the date you received the gift. These numbers are adjusted in some cases. But without cost records, you have no way of proving the donor’s basis and no way of saving yourself tax dollars.

If asking for records of the cost when you receive a gift seems inappropriate, explain why you want to know to help make the conversation less awkward. No one likes to pay unnecessary taxes. Having the same conversation about the cost of valuable gifts you received in prior-years is also worthwhile.

If you’re the gift-giver, offer the additional gift of presenting the cost records to the recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of unnecessary taxes.

Remember, good planning is the key to a successful year and we’re here to help you along the way. Contact us at consulting@reynoldsrowella.com to discuss your situation.

Filed Under: Gifting and the IRS Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Gift Giving and Tax

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