The $5,120,000 per person gift tax exemption is supposed to last until December 31, 2012. Why use it now if you still have next year? Here are two good reasons.

The first is that given our country’s economic and fiscal situation, the Joint Select Committee on Deficit Reduction, also known as the “Supercommittee”, may reduce the gift tax exemption sooner than 2012. At least half the members of the committee are insisting on tax increases as part of the deficit reduction “solution”. (As one wag put it, where do all the “solutions” go after politicians get elected?)

The Obama administration has not only proposed tax increases in its jobs bill, but is also calling for a return of the estate and gift tax rates and exemptions to their 2009 levels. That means an estate tax exemption of $3,500,000 per person, but a gift tax exemption of only $1,000,000 per person. So it is possible a significant reduction in the current $5,120,000 gift tax exemption could occur sooner than the end of 2012.

This...

Many politicians have repeatedly talked about the need for “the rich” to pay more income taxes. Even Warren Buffet has joined the debate. Regardless of whether Congress acts, the IRS has already taken matters into its own hands and has started scrutinizing wealthy taxpayers to an unprecedented degree.

The audit rate for taxpayers with an annual income of more than $1,000,000 is already eight times higher than the general population, which had a 1.1% audit rate. For those with $10,000,000 or more in annual income, the audit rate climbs to almost one in five returns—almost 20 times higher than the general population. However, the IRS is planning on increasing audit rates on wealthy taxpayers even more.

The IRS effort involves a new “wealth unit”. Audits will be conducted by a team of IRS agents who will focus not only on a taxpayer’s individual return, but the returns of all related entities. The scope of these audits will be much wider than a typical income tax audit.

For example, the...