Estate & Gift Taxes

Taxes and Your Coins

There are numerous reasons for collecting coins, whether its for their artistic value, their monetary value, or for some other passion; however, one aspect of coin collecting is often overlooked or unknown is the tax implications of coin collecting.

Tax Planning and Estate Taxes

The old saying is that there are only two things certain in life. Death and taxes. Actually, these two items are more connected than most realize. Upon your death, if your estate is valued over a certain amount, then your estate may have to pay an additional tax based upon its value. This additional tax is called the estate tax and while this tax is not levied directly against your heirs (it is paid by the estate), it does reduce the amount of your estate that ultimately gets passed through to them.

For purposes of the estate tax, your estate includes not only your real estate, bank accounts, and securities, but also personal property such as art objects, collectibles (including coins), and insurance proceeds. The value these items contribute to your overall estate is based upon the fair market value of the items and not necessarily what you paid for them, an especially important point for collectors of items that normally appreciate in value over time such as art and coins.

For 2006-2008, the amount your estate can be valued at before triggering the estate tax is $2 million and will be raised to $3.5 million in 2009. In 2010, the estate tax is set to be repealed altogether; however, this has been an issue in constant flux and has been a political hotbed. In other words, believe it when you see it.

There are a number of ways to help minimize or even eliminate altogether the estate tax including annual gift giving and the use of trusts. Because of the uncertainty with the future of the estate tax, special planning attention needs to be made on a regular basis to keep abreast of the latest tax law changes in order to protect your assets.

Gift Taxes

One of the ways you can help reduce your taxable estate upon your death is through annual gift giving before death. In 2006, a taxpayer can make gifts of up to $12,000 per year per donee without incurring any gift taxes. This $12,000 limit is called your annual exclusion and is usually indexed for inflation each year. If you make a gift to someone of a value over the annual exclusion limit, then you generally must file Form 709, your annual Gift Tax return. Even though you must file this return, you still may not actually owe any gift taxes by taking advantage of the lifetime annual exclusion that allows you to exempt up to $1 million of gifts given that are over and above the $12,000 annual exclusion each year.

One important note, though, is that the annual exclusion limit only applies to cash gifts or present interests in property. It does not apply to gifts of future interests. In other words, the gift must be immediately available to the donee and not a gift that becomes available at some point in the future e.g. when a child achieves a certain age in the future.