When you transfer your money investments to another person, you won't owe any income tax to the IRS. However, you could get hit with a couple other taxes. If you have made a lot of monetary gifts over your lifetime (literally millions of dollars worth), you could owe gift taxes on the transfer. You will also owe taxes if your monetary investments are coming out of a retirement account.
Whether you owe gift taxes depends on the size of your investment account. You can give away $13,000 a year to as many people as you want per year, as of 2012, without having to deal with the IRS. You won't owe any tax and don't need to file a return. If you give someone more $13,000 in one year, you need to file a gift tax return. In most cases though, you still won't owe any tax. As of 2012, you can give away another $5 million worth of property over the $13,000 annual limit and not owe taxes. You only owe gift taxes if you give one person more than $5.013 million worth of property.
Paying Gift Taxes
If in one year you transfer more than $13,000 worth of money investments to one person, you need to report the gift to the government on IRS Form 709. This lets the government keep track of large property transfers. If your investment gift pushes you over the $5.013 million lifetime exemption -- a number that is, again, good only through the 2012 tax year -- you'll need to pay gift taxes on any amount over the limit. The current gift tax rate is 35 percent. Even though someone else is taking over your money investments, it's still your job as the donor to pay the owed gift taxes. It's also your responsibility to keep up with the changing tax laws -- the gift tax limits for 2012 could easily change in future years.
Gift Tax Exceptions
If you legally changed your name and are just updating your account information, you won't owe gift taxes as you aren't transferring your money to another taxpayer. You also won't owe any gift taxes for transferring your money to your spouse's name. Finally, you won't owe gift taxes if you give your money investments to a qualified charity. These transfers don't incur gift taxes and don't use up your lifetime exemption.
If your money investments are part of a retirement account, you'll owe some extra taxes. You can't directly transfer a retirement account to someone else. You need to withdraw the investments first and then make the gift. When you take money out of your retirement account, you'll owe income tax plus a 10-percent penalty on the entire withdrawal. The penalty ends when you turn 59 1/2. The only time you avoid these taxes is when you transfer your IRA to your ex-spouse as part of a court-ordered divorce agreement. Otherwise, you'll have to pay these taxes and penalties before transferring your money investments.
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