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J. Warren
J. Warren, Attorney
Category: Business Law
Satisfied Customers: 2211
Experience:  Experience in general business transaction and formation matters.
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I am being offered a stake in a company. 5% is being gifted

Customer Question

I am being offered a stake in a company. 5% is being gifted as I am told so i have less tax consequences, then i will be allowed to purchase up to 20% of the company. What i want to know is does 5% not have any tax consequences? If so why can't i just get 20% gifted. Also do i take on any fiduciary responsibilities that may be incurred due to the actions of the owner before i become a stakeholder?
Submitted: 7 months ago.
Category: Business Law
Expert:  J. Warren replied 7 months ago.
Hello and welcome to JustAnswer. Please note:This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms.The 5% you receive will have the donor's basis of value. This means if the stock is sold, the gain that is taxed at a capital gains amount will be the difference between the donor's basis and the fair market value of the stock when sold. For illustration purposes only, assume the stock value when the donor acquired the stock was $1/ share. The stock when gifted has a fair market value of $10/share. If you purchased the stock your basis would be $10 but because the stock was gifted your basis is $1. If you then sell the stock at a value of $20/share your gain would be $19/share on the stocks received as a a gift. Where as stock acquired by you at $10/share would have a gain of $9 per share. There is no gift tax in Alabama so the tax consequences are the basis of the gift the gifted stock being that of the donor. The fiduciary liability of the donor does not get past on.All my best and encouragement. Thank you for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! Please press a positive rating above this message box in the ratings section so I will be paid for my time assisting you on this matter. Pressing a positive rating will not cost any additional money - it is simply the trigger used by Just Answer to pay me for my time (pressing the middle star or the fourth or fifth star on the right are all positive rating buttons).
Customer: replied 7 months ago.
Thanks for taking the time to explain this. Just to dumb it down for me a little bit more. What you are saying is that if the Owner wants to gift all 20% of it he can without any tax consequences because this is Alabama where the business is registered? And when it is gifted to me, it should not necessarily be the fair market value but could be what the value was initially. Initially the value was i guess 0. I guess what I am asking is that if the owner wants to, he can gift me as much as he wants to without me having any tax burden in Alabama.
Expert:  J. Warren replied 7 months ago.
Yes he could gift and no consequence to you other then the fact you will have to recognize more gain if you were to sell the stock at a later date. If you buy the stock your basis is what you pay for it but the stock gifted is what your Owner acquired the stock for. Nothing on the front end but you may end up paying more in capital gains on the gifted stock if you were to sell them down the road.All my best and encouragement. Thank you for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! Please press a positive rating above this message box in the ratings section so I will be paid for my time assisting you on this matter. Pressing a positive rating will not cost any additional money - it is simply the trigger used by Just Answer to pay me for my time (pressing the middle star or the fourth or fifth star on the right are all positive rating buttons).
Expert:  J. Warren replied 7 months ago.
Can I answer any additional follow up questions for you or clarify anything I have written above? If not, can you please press a positive rating above this message box in the ratings section so I will be paid for my time assisting you on this matter? Pressing a positive rating will not cost any additional money - it is simply the trigger used by Just Answer to pay me for my time (pressing the middle star or the fourth or fifth star on the right are all positive rating buttons).
Expert:  J. Warren replied 7 months ago.
Also let me clarify that there are no tax consequence to you. The Owner/Donor will use up a portion of his/her lifetime exemption amount currently 5.45 million for any value over the annual exclusion amount of $14,000. So if for example the stock was worth $464,000, the owner would not pay gift taxes but would have to report a gift of $450,000 ($464,000-$14,000) resulting in his/her lifetime exemption being reduced to 5 million. Again, a tax is not due at the time of the gift to you nor the Owner/Donor unless it is over 5.45 million.I hope this helps.All my best and encouragement. Thank you for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! Please press a positive rating above this message box in the ratings section so I will be paid for my time assisting you on this matter. Pressing a positive rating will not cost any additional money - it is simply the trigger used by Just Answer to pay me for my time (pressing the middle star or the fourth or fifth star on the right are all positive rating buttons).