1) If you don’t already have an EIN for your business, you may be required to obtain one. An EIN is a nine-digit number that the IRS assigns in the following format XX-XXXXXXX. The IRS uses this number to identify tax payers who are required to file various tax returns. You will use your EIN on all of the items that you send to the IRS and the Social Security Administration (SSA). This permanent number is also needed for most business needs including opening a bank account, applying for business licenses and filing a tax return by mail. Note: An EIN is for use in connection with your business activities only. Do not use your EIN in place of your social security number (SSN).

You should have only one EIN for the same business entity. If you have more than one and you are unsure as to which one to use, call the Business and Specialty Tax Line at 1-800-829-4933 (TTY/TDD users can call 1-800-829-4059). You will need to provide the numbers that you have, the name and address to which each was assigned and the address of your main place of business..

EIN’s are used by employers, sole proprietors, corporations, partnerships, non-profit associations, trusts, estates of decedents, government agencies, certain individuals and other business entities.

2) If you answer “yes” to any of the following questions, you are required to have an EIN:

1. Do you have employees?
2. Do you operate your business as either a corporation or partnership?
3. Do you file any of these tax returns: employment, excise, or alcohol, tobacco and firearms?
4. Do you withhold taxes on income, other than wages, paid to a non-resident alien?
5. Do you have a Keogh plan?
6. Are you involved with any of the following types of organizations?

a. Trusts (except certain grantor – owned revocable trusts, IRAs, Exempt Organization Business Income Tax returns)
b. Estates
c. Real Estate mortgage investment conduits
d. Non-profit organizations
e. Farmers’ cooperatives
f. Employee plans

Go to the IRS’s website for more specific information regarding if your business must obtain an EIN. Then, read Part 2 of our blog post next week which will offer more EIN tips, information on how to apply for an EIN and how to avoid common EIN problems

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Unified Credit (Applicable Credit Amount)
The unified gift and estate tax credit is the lifetime federal credit available to each taxpayer to reduce or eliminate the tax on transfers that he or she makes during life and at death.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the gift tax credit schedule and estate tax credit schedule were not unified in 2004 - 2010.  They have been reunified for 2011 - 2012 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

The unified credit applies to both the gift tax and the estate tax and it equals the tax on the applicable exclusion amount. You must subtract the unified credit from any gift or estate tax that you owe. Any unified credit you use against gift tax in one year reduces the amount of credit that you can use against gift or estate taxes in a later year.

Beginning in 2011, and continuing through 2012, the amount of unified credit available to a person equaled the tax on the basic exclusion amount plus the tax on any deceased spousal unused exclusion (DSUE) amount. The DSUE is only available if an election was made on the deceased spouse's Form 706.

The unified gift and estate tax exclusion for 2011 was $5,000,000, which is equivalent to a tax credit of $1,730,800 and for 2012 the tax credit maximum is $1,772,800 (exempting $5,120,000 from tax). 

Please note, the $5,120,000 estate tax exemption amount is scheduled to expire at the end of 2012 and revert back to the $1,000,000 exemption amount beginning in 2013 (adjusted for inflation).

Annual Exclusion for Gifts.
The main rules for gifts between individuals are fairly simple. These gifts don't produce deductions for the donor or income for the recipient.  However, if you give more than the annual exclusion, you may use part of your lifetime estate tax exemption or pay gift taxes depending on your individual circumstances.   A separate annual exclusion applies to each person to whom you make a gift. The gift tax annual exclusion is subject to cost-of-living increases. For 2012, you can give gifts valued up to $13,000 per person, to any number of people, and none of the gifts will be taxable.  But if you give more than the annual exclusion amount to one person other than your spouse in a single year, you'll have some planning concerns - and a reporting obligation.

In addition, gifts of future interests cannot be excluded under the annual exclusion. A gift of a future interest is a gift that is limited so that its use, possession, or enjoyment will begin at some point in the future.

Read the more about the article from the IRS.

If you have any questions regarding Unified Gift and Estate Tax Credit or the Gifts and Annual Gift Exclusion or any other tax or IRS related matters, please feel free to contact a Stone Carlie Tax Professional at 314-889-1100, or email us at taxinfo@stonecarlie.com.

Circular 230 Notice: Any tax advice contained in this communication was not intended or written to be used, and may not be used, for the purpose of avoiding penalties that the IRS might attempt to impose on a taxpayer.  No one, without our express prior written consent, may use any part of this communication in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any other taxpayer.  We impose no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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