http://www.pressies.org/family-gifts-taxable/
What is the best way to transfer money between family members legitimately with minimal taxes involved?
In particular, if two parents transferred money ($10,000+) into their child’s (over 18 and not a dependent) bank account, is this considered taxable income? Is it subject to the federal gift tax?
What’s the best way to do this such that everything is above-board, the IRS would feel it’s kosher, and 30-40% of it doesn’t disappear in taxes?
Many thanks in advance.
Cash in an envelope isn’t too helpful a suggestion as the money would need to be spent in the near future (in excess of $10,000 and thus reported by the receiving party).
Also, when I say $10,000+ we’re talking $200,000+
Not sure that any special circumstances in the under-$10K realm will apply.
Thanks Charles G – sounds like this avoids the gift tax under $1M then on the giving party’s end. Will there by income tax problems on the receiving party’s end?
Since you’re talking about $200k, let’s assume that it’s $100k from each parent. Since this exceeds the $12k annual Gift Tax exclusion, both parents will need to file a Gift Tax return. (These cannot be filed jointly.) They will each use up $88k of their $1 million lifetime exclusion. Until that’s used up, no tax will be due. However this is tied to the Estate Tax exclusion and will reduce it dollar-for-dollar so it may impact the amount of Estate Tax, if any, upon their passing.
The recipient never pays taxes on bona fide gifts. And the method of transfer doesn’t matter.
