Re: Gifting to Children

[cute fuzzy bunny]

Re: Gifting to Children

Yeah, a forensic accountant takes your bank statements and transactions, and their bank statements and transactions, and connects the dots.

You can certainly give them more than that, but they may have to pay taxes on it.

Now what I think isnt spelled out, is that you can pay bills for them that arent tax related. For example, you could pay off their car loan for them (I think...maybe this would be perceived as gifting), or pay their utility bill. If you pay the mortgage though then you'd be eligible for the interest deduction, not them. This might be borderline, but its harder to track and excepting a full on 7 year audit its unlikely to be pulled up and might be hard to prosecute.

Now, you could buy their house from them at market value, if they've lived in it longer than (what is it? 2 or 3 years these days?) out of the last 5, then they dont have to pay capital gains on the money you give them. You could then allow them to live in it rent free and put the house as going to them in your will. Estate planning to minimize THAT burden is something I dont know about, because up until now I havent had anyone to leave an estate to and i'm not planning to leave at all for a while.

By the way, are you adopting?

 

[Cut-Throat]

Re: Gifting to Children

Jarhead,

I'm not sure how they would know, but I think the limit has been increased to $11,000 as of a couple years ago.

I think Banks have to report all transactions over $10,000 - this may be one way. Otherwise it probably is the 'honor' system.

 

[Jarhead*]

Re: Gifting to Children

TH, Cutthroat:
TH: I guess I didn't explain properly. What I was wondering, is what event would trigger having an accountant step in and "connect the dots".
Cutthroat: You may be right about the $10,000 requirement for banks to report to Irs. I will check this out. However, I think you may have it confused with requirement the bank has with IRS to report any cash deposited in excess of $10,000.00. (Drug laundering, etc. etc.).
By the way TH, from your posts, you are probably better off financially than I am, so it wouldn"t be considered an adoption, but a merger

 

[JWR1945]

Re: Gifting to Children

ex-jarhead

To anybody that can answer question. (Hopefully there are enrolled agents, or ex Irs agents on board.

I have from time to time gifted my children $10,000.00. The maximum allowed not to trigger gift tax.
My question is, "how would the Irs know that you have exceeded that amount?
We don't have that much, but I would rather help my kids out now, then after we're gone.
Both of my kids are responsible, and nothing has went to credit card debt. Mostly big events, buying home, etc. etc.
Be that as it may, is there anybody aboard who may have an idea as to how the $10,000.00 limit would be enforced?
Thanks, Ex-Jarhead

Don't worry. Filling out the form is a pain, but you don't owe any taxes. You probably don't even have to file.

Visit the IRS website and get Form 709 and its instructions for United State Gift Taxes (f709 and i709):
www.irs.gov

First, both you and your wife can contribute $11000 per child per year without any taxes and without reporting anything. [This may have increased since 2002.]

Second, it is possible that some of your payments are support and not gifts. Most likely, your children are on their own and they are gifts.

Third and most important: there is a Unified [Tax] Credit. For 2002 it totaled $345800.00. The calculations are a little complex and my memory is not entirely clear (since I didn't have to fill out a form last year). IIRC, you calculate the total amount of Gift Taxes that you would have had to pay over the years (and the form has you refer to previous forms to make the record keeping more manageable). You never pay any Gift Taxes until your total exceeds the Unified [Tax] Credit (of $345800.00).

Each donor has the Unified [Tax] Credit.

Roughly speaking, you don't owe anything until your gifts total well over $1 100 000. You and your wife, when acting together, don't owe anything until both of you give $1 100 000 (or $2 200 000).

Gift tax rates ranged from 18% to 50% in 2002.

Check out the instructions and look at the forms. It will be a little confusing because Generation Skipping Trusts fall into the same category.

The IRS wants the forms if they are due. But they won't hassle you too much as long as it is obvious that you don't owe anything.

Have fun.

John R.

 

[cute fuzzy bunny]

Re: Gifting to Children

JWR appears to have a handle on this.

What would trigger such an accounting review would be having done a 1 year audit, finding some items improperly done, which would trigger a 3 year audit. If more "funny business" is found, you then get the full anal probe of 7 years. Then they take everything apart and want to know where every penny went. At least thats the way they used to do things.

About the only other things that would cause such an analysis would be a major felony criminal indictment, such as racketeering or one of the many 'conspiracies'. Or a divorce where the wife might contend that you had been spinning off assets by making excessive "gifts" to others.

I'd still consider an adoption. That way I could keep my portfolio working without withdrawals. You could send me more tax free gifts. I could stop by and drink all your beer once in a while. It'd work out nicely I think. Come on, if nothing else, I'm a kid you can really be proud of!

 

[charlie]

Re: Gifting to Children

I may be wrong on this but I think you and your
wife could each contribute $11000 per child ($22k total)
per year. You could give an equal amount to their
spouses and your grand kids, if you are so inclined.

In short, I think you can give to anyone you desire.
Can I get in line behind TH?

Cheers,

Charlie

 

[cute fuzzy bunny]

Re: Gifting to Children

I already asked. He said a case of good beer and two free rounds of golf per week would be acceptable.

I'm willing to subsidize the reverse dowry.

 

[Tax Expert]

Re: Gifting to Children

Yeah, a forensic accountant takes your bank statements and transactions, and their bank statements and transactions, and connects the dots.

You can certainly give them more than that, but they may have to pay taxes on it.

Now what I think isnt spelled out, is that you can pay bills for them that arent tax related.  For example, you could pay off their car loan for them (I think...maybe this would be perceived as gifting), or pay their utility bill.  If you pay the mortgage though then you'd be eligible for the interest deduction, not them.  This might be borderline, but its harder to track and excepting a full on 7 year audit its unlikely to be pulled up and might be hard to prosecute.

Now, you could buy their house from them at market value, if they've lived in it longer than (what is it? 2 or 3 years these days?) out of the last 5, then they dont have to pay capital gains on the money you give them.  You could then allow them to live in it rent free and put the house as going to them in your will.  Estate planning to minimize THAT burden is something I dont know about, because up until now I havent had anyone to leave an estate to and i'm not planning to leave at all for a while.

By the way, are you adopting?

Please don't give out tax advice if you are not sure. Someone might either believe you or it may start one of those urban rumors on how to avoid paying taxes.

The person receiving the gift NEVER pays taxes on that gift. In fact, even if the donor gifts more than $11,000 per year to a recipient, the donor may still not have to pay gift taxes, but will have to file a gift tax return.

Paying any bills for someone else, whether tax related or not, is considered a gift or even possibly income to the receiver.

 

[malakito]

Re: Gifting to Children

Please don't give out tax advice if you are not sure.

...

Paying any bills for someone else, whether tax related or not, is considered a gift or even possibly income to the receiver.

Unless they're your minor kids or your spouse, in which case it can be considered support. Or your ex-spouse, which is alimony. Neither of which, I believe, are considered gifts (although alimony may be taxed as income; I dunno as I have no ex-spouses (ex-spice?)).

I don't know when paying a bill for a child ceases to be considered support and starts to be considered a gift. I thought I remembered that paying college tuition for your children was not included in the $11k/year limits.

What if ex-Jarhead's kids went to grad school and he picked up the tuition? Gift? Support? I dunno, I'm not a tax expert ;-)

malakito

 

[cute fuzzy bunny]

Re: Gifting to Children

Wow I didnt know I had the power to start an urban rumor.

I believe the law is in place to prevent people from sheltering income from taxes by excessive "gifting" and to inhibit criminals from distributing their ill gotten gains.

Looks to me like Jarhead wants to do well by his kids, using money that may have already been taxed at least twice, not for any wrong reasons. Sounds like what he was looking for was how closely these things are scrutinized and I still think that unless he's shuffling millions of ill gotten gains away to his cohorts, he doesnt have a whole lot to worry about with regards to a few extra thousand bucks passed along to his kids.

But you're right, it may still be improper by the letter of the law, and nobody should give tax advice, including the IRS, because nobody really understands it anymore. However, the day the government starts hounding a nice fella for giving a few extra bucks to his kids is the day I pack up and move to AlecBaldwinia.

Of course, if you work for the IRS, Mr/Ms Anonymous, I believe the correct answer is "yes sir/mam!"

 

[gayl]

Re: Gifting to Children

What if mom gave 10k to each of my siblings and me from her AB Trust (Dad's passed) and then she turned around and paid for a trip for all of us? Trip's gonna cost about 4k each. Can she just charge the trip ... can the trust pay it off ....