VANITY: Tax deductible gift to family members

None ^ | Myself

[Goodlife]

Hello all. Complete vanity here. I've suddenly come into a good deal of money.

However, my parents aren't very well off. It's not enough money that I could suddenly give them a big chunk of it and not miss it, BUT, if it means giving them the money and keeping it out of the hands of the government at the same time, well that I can deal with.

Does anyone know if it's possible to give a large gift to your parents and declare it tax deductible? I thought I'd heard something about this before. I will probably go to an accountant to get it all cleared up, but I wanted to see if anyone knew anything about this sort of thing before I plop down $300 to listen to an accountant say "yes" or "no."

[Goodlife]

Thanks!

[billhilly]

Suggest you go to the IRS website for the definitive answer, but, yes, you can give each of them $10,000 each year.

[Hugin]

I don't think so. To be tax deductable it would have to go to a legal charity. And you can't get around that by setting up a charity to benefit your family.

You can give each of your parents (or anyone else) up to $10k as a gift and it will not be taxed as income to them (that doesn't change whether it's taxable to you). If you're married your wife could also give them each 10k. So you could give them up to 40k per year without it being taxable income to them.

BTW, I'm not a tax advisor, but some years ago I worked in the insurace biz, and learned a lot about this stuff. Still, check it out with a real tax advisor to make sure things haven't changed.

[DeaconBenjamin]

To be tax deductable it would have to go to a legal charity. I'm not saying you suggested such a thing, however, IMHO it is always a bad idea to give money to a charity with the intent that a family member benefit from your gift.

[Pepper's_Paw]

The amount that may be given to anyone this year is 11K.

[Mamzelle]

To be tax deductable it would have to go to a legal charity. I'm not saying you suggested such a thing, however, IMHO it is always a bad idea to give money to a charity with the intent that a family member benefit from your gift)))

Interesting. I happen to know of folks who have set up non-profit foundations for the very reason of protecting assets and providing income to heirs. Is this a bad idea, for you, ethically or legally? I was rather surprised to find out that such things existed...

[tet68]

You are right, My mother gave my sister,brother and I such a gift. we paid no tax but she ended up paying almost $7000 in tax.

[Pepper's_Paw]

You may give anyone any amount without tax consequences up to the amount that you do not have to pay death taxes on. This year it is 1 million; however, you have to report that amount on your income tax return as information only. BUT, you may owe state taxes on that money.

[the bottle let me down]

At least one thing has changed--the annual gift exclusion is not $11,000 (increased for inflation).

I'm not aware of any way to give money to family that results in a deduction against current income (which is what I understood the question to be), but then I'm not a tax advisor.

[Pepper's_Paw]

Go to the IRS website and look up IRS Form 709

[Hugin]

You're right, I'm not saying that, in fact I said the opposite. If you set up a charity and the primary beneficiaries are relatives, the IRS may view it as tax evasion. For example you could set up a fund to give scholarships to kids in your hometown, that's fine. If you give all the scholarships to your grandkids, the IRS will likely say it's just a tax evasion scheme.

[Pepper's_Paw]

The amount that may be given went up on the first of this year to 11K.

[Pepper's_Paw]

Here is how my wife any set up our wills. We each gave an amount to our children that is equal to the amount that can be passed to heirs without taxes (that amount changes every year) with the surviving spouse getting the rest, which is always tax free to the surviving spouse. We each gave the income from the amount left to the children to the surviving spouse. This decreased the amount of the estate leaving that much free of taxes.

Hope I made this clear.

[TheCPA]

You may not claim an income tax deduction for a gift to a family member. You may claim a charitable deducion only for gifts to recognized charities and governments.

If your family members are in a lower tax bracket than you are, you might want to give them appreciated assets. When you do so, you will need to inform them how much you paid for the asset. Your basis would carry over to them. When they sell the asset, it would be taxed to them.

You may give up to $11,000 (at fair market value at the time of the gift(s)) per person per year without having to file a gift tax return. The gift must be of a present interest in property to qualify for this exclusion. If you are married, you and your spouse may elect gift splitting. In such a case, you may give up to $22,000 per person per year even if the property is held in your name only. You may give more than $11,000 ($10,000 adjusted for inflation) (or $22,000 if gift splitting) per person per year, but you would have to file a gift tax return. Unless you gave a very large amount, you would not likely incur any gift tax liability. However, you would use up some of your unified credit.

In addition to the annual $11,000 exclusion, you may pay money to a provider of medical care for medical expenses incurred by anyone, and you may pay tuition for another person directly to the school. The amounts are not limited and they are all excluded from taxable gifts. The money must be paid directly to the school or the medical provider and not to the individual.

[DeaconBenjamin]

A private foundation is not the same thing as a public charity. I know that the general public may view any tax exempt organization as a charity, but under IRS rules and state statutes, only certain exempt organizations qualify to be called as charities.

[DeaconBenjamin]

Likewise, if you make a gift to an existing charity, intending that the gift will benefit a family member, the IRS will take a similiarly dim view of the transaction.

[T. P. Pole]

You have been given good advise. However, if you are seeking a way for you to avoid paying taxes on the newly found money, there is none outside of the standard charity and other deductions. You cannot get away with skipping the taxes if you gift the money to others. What you are avoiding is making them have to pay taxes on the gift, if you stay under the limit.

Bottom line, you pay, they don't.

[exmoor]

Just say you owe it to me. They won't touch it. IRS