 Oh, and welcome to this session. This is Professor Farhad and this session we would look at the unified tax credit, which is part of the transfer tax. This topic is covered in a corporate income tax course, the CPA exam regulation section, as well as the enrolled agent exam. As always, I would like to remind you to connect with me on LinkedIn. If you haven't done so, YouTube is where you would need to subscribe. I have 1,600 plus accounting, auditing, finance and tax lectures. This is a list of all the courses that I cover. Please connect with me on Instagram. On my website, you'll have access to additional material, such as PowerPoint slides, true, false, multiple choice. If you're studying for your CPA exam, 2,000 plus CPA questions. If you're studying for the exam, I strongly suggest you take a look. So let's go through the estate tax formula, which is the fair value of gross estate, which is what I call line one, minus the deductions, the expenses and the losses on line two. And if you wanna see the lectures for line one and line two plus examples, see the link below in the description, so you can view those because if you don't understand how we compute gross estate, how it's deductible and what's not, it's not very helpful for the session. Those will give you taxable estate. We're gonna add to the taxable estate any taxable gift, which I would also put in the description link to the taxable gift. If you don't know how to compute the taxable gift, then that's gonna give us the equal, the estate tax basis. So notice what happened here. We have the estate and the gift tax added together because they are practically the same thing. Gifts are when you are alive, you gave those gifts. Estate is when you passed away, those gifts are passed to your herds or your friends or your family, whoever they are. Then we compute your tentative tax liability, whatever that tax liability is, then we deduct any tax credit you paid on those gift if any when you were alive, then we deduct the unified tax credit. So I'm trying to emphasize the unified tax credit here because that's the big thing, the unified tax credit less any other tax credit than if anything left, it's the estate tax do if that number is positive. So we need to understand how this unified tax credit fit into this whole picture. Before we look at numbers, let's take a look at the tax, the tax table. So this tax table is for gift maids and for that after 2012, after 2012. And I am doing this recording in 2020. I don't know, you could be, if you want this recording in 2022, it could change, but the concept will be the same. So what does that mean? If you happen to have the amount with respect to which the tentative tax can be, to be computed as 10,000, then you pay 18%. Between 10,000 and 20,000, 1,800,000 plus 20% of the amount over 10,000, so on and so forth. I'm gonna be working always with over a million to illustrate the concept because my formula, it's gonna be that. So if you have taxable income over a million, your taxes 345,800 plus 40% of the excess amount over a million dollars. So to illustrate this concept, to illustrate this concept, I'm gonna show you how it works. So let's assume, no, let's not assume anything. Let's clarify one point before we proceed. Then if you don't know this, you are giving a lifetime exclusion. This is a lifetime. This is not one-time thing. This is throughout your lifetime, when you are alive and when you pass away. You can give a lifetime of 11,400,000. What does that mean? It means when you were living, you could have gave $5 million in gifts. Then when you passed away, your estate had $3 million in value. Well, three plus five equal to eight. Guess what? You don't have to pay a penny in taxes because there's an exclusion of how much? Of 11.4 million. So up to 11.4 million, you don't have to worry about paying taxes. Let's translate this. Let's translate this a little bit further. What does that mean? Let's assume you had to pay taxes. Let's assume there was no ex-occlusion. Let's assume you had to pay taxes. How much will you pay taxes if you had 11.4 million of gross estate and gift tax? Let me show you the computation. So if you have 11.4 million of gross estate and tax, your tax bill would have been 345,800 plus the amount and access of a million, which is 10,400,000 times 40%. What did I get this from? This one right here. I told you I'm gonna be working with the amount over a million. So assume you have 11.4 million. When we compute your taxes, your taxes are 4,505,800. This is your tax credit from the unified tax credit. So if I told you you have an execution amount of 11,400,000 or I told you your total tax credit is 4,505,800. Basically the same thing. It's either simply put, as long as my gross estate and gift tax don't exceed 11,400,000, I don't have to worry about anything. Or another way to say it, if I have a bill of 4,505,800 dollars, that I can wipe out my taxes with this tax credit. So it's saying the same thing. But the best way to illustrate this is to actually look at few examples and I will change the numbers to show you how this works. Because it's very important that you appreciate it. Just see how it works, okay? So let's go to the Excel sheet to see how this all fits together. Okay, let's take a look at this Excel sheet. I created this Excel sheet, very similar to the formula that we have gross fair market value of gross estate less the expenses deduction and losses equal to the taxable estate. Add the post 1976 taxable gift equal to the estate tax, compute your taxes less any gift, less gift tax paid on post 1976 gift, less the unified tax credit, which we already already computed for you, 4,505,800, it just ignored this number for now negative 54, okay? So this is basically the formula. So I'm gonna start with the simplest example and tell you, assuming we have a gross estate of 11,400,000. We had no deduction, therefore our taxable estate is 11,400,000. We had no gifts, no gift, we did not gift any gift during our lifetime, that's zero. So our estate taxable gift is 11,400,000. Our tax liability is 4,505,800, I did not pay any taxes on gifts because I didn't give any gifts. I introduced my unified tax credit, which is already told you how I compute this, I don't have any taxes because that 4,500,800 dollar is wiped out, taxable is wiped out by my unified tax credit, okay? So let's work, I'm gonna always be working with that amount over a million because my formula is over a million. So if you wanna use an amount less than a million, you have to go in here and change this. So if your amount is between 750, your taxable, the tentative tax is between 750 and a million, you have to change the formula to 248,300. So you have to change this to 248,300, plus, this will have to change to 39% rather than 40, plus 39% of the excess over 750, so you have to change the formula here, the formula here, B5 minus 750. But I'm gonna be working with an over a million dollar tax bill this way, I can use the formula. So let's go back and let's assume you have fair market value of the grossest state is 15 million, you have fair market value of the grossest state is 15 million, you have expenses and losses deductible of a million. Now we have taxable a state of 14 million. Let's assume during your lifetime, you gave 2 million worth of gifts. That's gonna give us a state tax basis of 16 million. And let's assume you did not pay any taxes on those gifts, you paid zero because you didn't have to because they were below the exclusion, you paid zero, let's assume that's the case. Now your tax bill is 6,345,800, you have a tax credit of 4,505,800, so your tax bill is 1,840. Let's assume when you made those 2 million of gifts, you happen to pay 10%, which is 200,000. So if you paid taxes 200,000, that taxes will be counted and your tax bill now will be, your tax bill now in red will be reduced. If you happen to pay 250, on those taxes during your lifetime, now your tax bill is 1,590. So you could now, based on this formula, let's change the number, let's assume your grossest state was 13 million, you have 1 million in expenses of 13 million, you have 1 million in expenses, now you're down to 12 million. And let's assume, yes, 12 million, and let's assume your tax, you did not have any taxable gifts. Let's assume you have taxable gift of 2 million, that's fine, you have 14 million of estate tax basis, 14 million that's gonna give you a tax of 5,545,000, assuming you paid nothing during your lifetime. Then, that's 1040, wow, what a coincidence. So your tax bill will be, your tax bill will be 5,545,800, 4,505,800 will be wiped out because of the unified tax credit, what you're left with is 1 million and 40,000. So hopefully, you will, with this formula, it will help you. Again, if your estate tax is less than a million, you have to change this formula. I'll be posting this, I'll be posting the formula on my website, so you can download the formula from my website. So I hope at this point, you are comfortable, you see how the unified tax credit work. If you are looking for additional resources, I always suggest you visit my website and if you're studying for your CPA exam, use your resources. This is a lifetime investment, you're making a lifetime investment. Make it properly because the CPA will pay dividend for years. Good luck and study hard. In the next session, we'll look at a few CPA simulations that deal with what's included in gross estate.