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Confirmed Tax Information 9/16/11
Fri Sep 16, 2011 8:11 am by MichaelG
This is a call concerning the tax we will pay on the investment, and gift tax questions. I thought it would help some out with some questions. I know it will create some questions and hope you will ask them on here. This is why I started this message board.
A Call to the IRS 03/14/2011 posted by Trac
EdwardK on Tue Mar 29, 2011 4:37 am
A Call to the IRS 03/14/2011 posted by Trac
I called the IRS yesterday with a couple of questions.
After spending approximately 15-20 minutes on hold I got to talk to a Mr. Kirk ID# 5906613. When you call 1-800-829-1040 you should ask for the Complex Individual Issues.
I spent approximately 30-40 minutes with Mr. Kirk, a very nice man of which answered my question very well.
1. The first question of number one on most of our lists which concerned just how are we to be taxed on our currency transaction. He mentioned (2) publication that he would be using to answer this question. Pub 525 and Pub 550. His first question to me was did I purchase the foreign currency using a futures contract and then also mentioned 1256 contracts. I said no contracts. I then went on to explain exactly how I purchased my foreign currency, that it was sent to me from a foreign currency dealer here in the United States via Federal Express and I paid for it using a money order. He said if my gains were less than $200 then I would not owe any taxes. I said it will be over $200 gain. He then said you will be taxed as capital gains. I asked him what the tax rate would be ? He asked me when did I purchase the currency and I told him. In my case I have held my currency for well over a year. I told him I had been told that it could possibly be regular income ? His reply was no - Capital Gains. I asked him what publication and paragraph would I use ? He lead me to Pub 525 on the internet and page 33 of that publication then had me find Foreign Currency Transactions.
I asked him so what is that Pub 550 you had mentioned ? He said that is if you purchased your currency using a futures contract. I said I did not do anything like that. He said then you will file this transaction on Schedule D - Capital Gains and Loses.
Note: I did mention what about a getting a certified letter of opinion ? He said the cost of those start at around $1000.00 - there is no need for you to have anything like that. This currency transaction you have made is simply Capital Gains.
2. My second question was on the gifting. I stated out with gifting US currency and tried to get information about the lifetime gifting increase. The $5,000,000 lifetime gifting does not come into play the way it was previously explained to me. If you wish to gift US currency either keep it under the $13,000 gift exclusion. If you gift over the $13,000 exclusion the amount over the exclusion will be deducted from your lifetime gifting of $1,000,000. The $5,000,000 does not come into play at all with this gifting even though it is included in your estate lifetime your lifetime gifting exclusion over and above the $13,000 exclusion is still $1,000,000. I used the example that if I gifted one of my childrean $15,000 how will I be taxed on it if I have not used any of my lifetime gifting. He said I would file on the $15,000 gift - then subtract the $13,000 exclusion and the $2000.00 would be deducted from my $1,000,000 lifetime exclusion. Once I have exceeded my $1,000,000 total lifetime exclusion I would have to pay gifting tax of approximately 35% for any amount gifted from that time on that was over the $13,000 gift exclusion. So I asked him when my lifetime exclusion is used up I can still gift the $13,000 per year per person without having to pay any gifting tax ? He said that is correct. But if in a years time you gift to any one person over the $13,000 exclusion you will owe a gift tax on the amount that exceeds the $13,000.
3. My third question was at what amount does the recipient of the gift has to pay any taxes on the money they receive as a gift. He was a bit of a comedian and said they would enter that amount on there tax return where they enter their Christmas gifts. I am a little slow sometimes but did not take me long - and I said so they never have to file the gift on their tax return regardless of what the amount is ? He said that is correct.
4. My fourth question was if I gift the foreign currency to my children and I will use the example of : At the time I gift the foreign currency to my children it is worth $100 but when they sell it how will they be taxed on it ? He said capital gains. So I said do I give them some kind of letter or what to show when I gave it to them and how much I paid for it. He said yes they will need a paper trail of where the money came from and what the basis was on it. I said do I need to have this notorized ? He said no - and followed with the question - Is your tax return notorized. I said no. He said the paper trail does not need to be notorized either. So I gave him another example : If I wrote a letter stating the amount of the foreign currency - the price I paid for the currency and the date that I gifted the foreign currency and attached the receipt of my purchase of the foreign currency to show I actually gave them the gift after my proof of purchase date, would that be sufficient ? He said that would be fine. I said so what tax rate would they have to pay ? He said it would depend on how long they actually held the foreign currency.
Well I thanked him sincerely for his time and information and we said goodbye.
Take this for what it is worth to you. I don't care to debate this with anyone. I am only trying to pass on my actual experience with the IRS that I had today.
If you call the IRS at 1-800-829-1040 you should ask for the Complex Individual Issues.
I believe why some are getting conflicting answers from the IRS is because they are all calling different departments and the people are experts only on those particular issues.
Continued from Trac
I have heard so many conflicting stories as to how we will be taxed on this investment. I finally decided to call the IRS myself. And you can do this too just for peace of mind if nothing else.
When you call 1-800-829-1040 you should ask for the Complex Individual Issues.
If you do get any other answers other than what I was told please mention this publication 525 and in that page 33. Foreign Currency Transactions
Page 33 Foreign Currency Transactions
There will be some of us with such a low income that may even not have to pay any tax on this investment. This gets far more complicated and will require you to fill out the Schedule D - Capital Gains and Losses for your individual situation.
Then you will use the Schedule D Tax Worksheet located in the Instructions for Scheduled D.
We will still owe whatever state tax we have on this investment too but still this is far better than paying our regular income tax rate, especially if you have been holding your dinar for more than a year.
I know Arkansas has a Capital Gains Tax of 7%, based on long term and short term just like federal there is a $300,000 exemption for long term as part of the basis. On the Gift Tax, you are required to file an information return, Form 709 - U.S. Gift Tax Return. These returns should not be filed until January 1 of the year following the year in which the gift is made. In other words, any gifts made in 2010 will not be due (and cannot be processed) until after December 31, 2010. Also, the $5,000,000 does come into play on your estate, after you are deceased. I hope no one has to use that any time soon. (This is to help in leaving your estate to your wife or children.)
I hope this helps.
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