taxes on gifts

[jenisha3]

What is the name of your state? Florida

I paid $18K credit card bill of my friend, who is having terminal disease, by directly payable to the credit card company. Will this be treated as gift to my friend? Whether I or my friend should pay any tax on this $18K as I heard that gifts above $15K or 14K are taxable gifts (is it 15 or 14?). We both live in Florida.

If my friend, lives in Florida, receives multiple gifts (directly payable to him), each less than $14K and each is from a different donor (and none of the donors are wife and husband), then whether my friend should pay any taxes on those gifts he receives? Is there any limit on the total amount of gifts he can receive like that in a year from multiple people without paying any taxes (each gift less than 14K and each is from different donor and none of those donors are wife and husbands).

 

[adjusterjack]

Recipients don't pay tax on gifts no matter how much they are.

Givers don't pay tax on gifts unless they give away more than the lifetime gift exclusion which is something like $11.8 million.

What you have to do is just fill out a gift tax return if you gave more than $15,000 to your friend.

You'll find the form and instructions on the IRS website.

 

[FlyingRon]

$11,580,000 for this year.

 

[Taxing Matters]

What is the name of your state? Florida

I paid $18K credit card bill of my friend, who is having terminal disease, by directly payable to the credit card company. Will this be treated as gift to my friend?

Yes. That's a gift just as much as paying the friend the cash so that he could pay the bill.

Whether I or my friend should pay any tax on this $18K as I heard that gifts above $15K or 14K are taxable gifts (is it 15 or 14?). We both live in Florida.

Gifts have no impact for federal income tax. It is not income to the person receiving the gift, and there is no deduction for the person making the gift. There is no Florida income tax. As for gift tax, there is no Florida gift tax.

The impact here is with the federal gift tax. The federal gift tax works as follows. First of all, the You may give total gifts during the year of up to $15,000 (this amount changes every so often for inflation, but for 2020 it's $15,000) to as many people as you want without triggering any gift tax issues. That means you add up all the gifts to you give to, say, Mary during the year. If the total of all those gifts is $15,000 or less, there is no gift tax impact. You do that for each person to whom you give gifts. The amount of gifts over $15,000 that you give to any one person in a year is known as a taxable gift. So if your gifts to Mary during the year total $20,000 then you have made $5,000 in taxable gifts to Mary that year.

Federal tax law gives you a lifetime credit (called the unified credit) that you may use against federal estate and gift taxes. That credit currently allows you to give up to $11.58 million in taxable gifts over the course of your lifetime or at death without paying any actual tax. That figure too is periodically adjusted for inflation. So if you give this year $10,000 in taxable gifts to people that taxable gift first reduces your unified credit and you pay no tax. That leaves you less credit to use next year or for your estate to use on your estate tax return when you die. You only actually pay gift tax when you have totally used up that unified credit, i.e. you have given over your lifetime more than the $11.58 million. Note that under current law, though, the unified credit will drop back down to something over $5 million starting in 2026.

If you make any taxable gifts during the year then you need to file a federal gift tax return to report the gift and compute how much of your credit you use up or what tax you pay if the credit is gone. The gift tax form is Form 709.

Note that if you give a gift to a grandchild or other relative that is two or more generations younger than you, or to some other person more than 20 years younger than you that you may also need to deal with generation skipping tax, too.

So, assuming you make no other gifts to your friend during this year, you've made a $3,000 taxable gift. You file the Form 709 for that next April (same time as your federal income tax return) and report the gift. But you pay no gift tax unless you've used up your $11.58 million unified credit. You just reduce your credit. You only pay tax when that unified credit is used up.

If my friend, lives in Florida, receives multiple gifts (directly payable to him), each less than $14K and each is from a different donor (and none of the donors are wife and husband), then whether my friend should pay any taxes on those gifts he receives? Is there any limit on the total amount of gifts he can receive like that in a year from multiple people without paying any taxes (each gift less than 14K and each is from different donor and none of those donors are wife and husbands).

Your friend has no tax issues at all for the gifts he receives. He could receive a billion dollars in gifts this year and have no income or gift tax to pay. The one exception to this is that if the person who makes a gift that is subject to actual federal gift tax fails to pay that tax to the IRS the law allows the IRS to collect that gift tax from the person who got it.

 

[jenisha3]

Your information is very useful, thank you all.
About "The one exception to this is that if the person who makes a gift that is subject to actual federal gift tax fails to pay that tax to the IRS the law allows the IRS to collect that gift tax from the person who got it. " Is it true that this may happen only if the total amount a person x gifted to person y in a year is above the free gift limit (which is 14K or 15K) becasue there is no gift tax for under 14k or 15k?

 

[Taxing Matters]

Your information is very useful, thank you all.
About "The one exception to this is that if the person who makes a gift that is subject to actual federal gift tax fails to pay that tax to the IRS the law allows the IRS to collect that gift tax from the person who got it. " Is it true that this may happen only if the total amount a person x gifted to person y in a year is above the free gift limit (which is 14K or 15K) becasue there is no gift tax for under 14k or 15k?

The donor (person making the gift) must have owed gift tax that he or she failed to pay. This means that there were taxable gifts (the portion of gifts that exceeds $15,000 for gifts made in 2020) made during the year and that the donor had no more unified credit left to use to apply to that tax. So that would mean this would only be a problem if the donor made taxable gifts made after the donor has used up his/her $11.58 million unified credit and failed to pay the gift tax owed. If the only gifts made during the year are under the annual exclusion amount ($15,000 for 2020) then there wouldn't be any gift tax and thus nothing for the IRS to collect from anyone.

 

[jenisha3]

Great, thanks again.

 

[jenisha3]

Any idea on gifts to minor children (age under 18 years)? Same rules as for majors (above 18 years) are applied to minors, in terms of receiiving the gifts?

For a minor or a major, can the gift be in any form: cash, check, paying grocery bills, etc, all together not more than 15K for a single person (recipient of the gift) from a single donor of the gift?

 

[Taxing Matters]

Any idea on gifts to minor children (age under 18 years)? Same rules as for majors (above 18 years) are applied to minors, in terms of receiiving the gifts?

The same rules apply. However, the $15,000 annual gift tax exclusion only applies to gifts of a present interest in property, i.e. where the donee (person receiving the gift) gets the immediate use and enjoyment of the property. So outright gifts of cash, toys, computers, cars, or whatever that the kid gets to have immediately and spend or use as he or she wants are gifts of present interest and qualify for the gift tax exclusion. But often parents or others want to make gifts to minors that the kid cannot access right away because the kid isn't smart enough about money yet to use it well. So they put the gift into a trust or some other mechanism in which the kid's right to get his hands on the money or property is restricted to some future date. That gift of a future interest in property does not qualify for the $15,000 annual exclusion. There is a way to draft a trust that will make use of the annual exclusion known as a Crummey trust (named after the court case in which the technique was approved) but the details of that are beyond the scope of what I can address in a short post on a message board. If you want to give the kid (or any adult, too, for that matter) a gift in trust, see a tax attorney for help with that. Note that putting the money for the kid in a UTMA or UGMA account is generally going to be considered a gift of a present interest and thus qualify for the gift tax exclusion.

For a minor or a major, can the gift be in any form: cash, check, paying grocery bills, etc, all together not more than 15K for a single person (recipient of the gift) from a single donor of the gift?

The gifts can be in any sort of property, cash, check, real estate, personal property like a computer, car, TV set, furniture, or whatever. You add up the value of all the gifts you make to each person during the year. If the the total gifts you make to any one person during the year exceeds the annual exclusion amount (currently $15,000) then the amount over the $15,000 is a taxable gift.

Note that there are also five important special exceptions for gift tax:

1. Gifts to charity can be of any amount and do not trigger any gift tax.
2. Gifts of tuition paid directly to the school for the benefit of someone else may also be of any amount without triggering gift tax.
3. Payment of medical expenses paid directly to the medical provider may be in any amount without triggering gift tax.
4. Gifts to your spouse qualify for a deduction on the gift tax return. This means that while you do have to file a gift tax return for gifts to a spouse exceeding the annual exclusion amount, you will not end up paying any gift tax or having your lifetime unified credit reduced for a gift to a spouse. In short, you can give gifts of any amount to your spouse without gift tax consequence but you may need to file the gift tax return.
5. Transfers of property pursuant to a divorce decree or settlement are not gifts and not subject to gift tax.

 

[jenisha3]

Great, thanks again, very informative.

If I understood correctly, if someone give a gift to a minor as cash only (not check) (currently below $15K) then can the minor's parents keep that cash as it is (in a safe deposit box) and give that cash to the minor once the minor becomes major then it is not acceptable. Is it true?

For a major, if a gift (below $15K) is given as check (or cash) then can the major use that gift for any purpose including cashing that check and save the cash in his/her safe, etc. for the rest of his/her life? If saved like that as cash (which may show that the major has no present interest in the gift), still the gift tax exclusion applied for the donor of that gift?

If someone give gift (below $15K) to a major, can the major gift that money to someone else as gift, now or any time in the future, even if that major has no other income at any time during those years?

Can a major receive gift (below $15K) as check or cash (such as western union) from someone in another country then can the major use that gift in the same way as it is given from someone within the USA?

Can a gift be given, to a major, in the form of cash only (not check)? I am asking this question because there is no way to prove (as in the case of check or wire transfer, etc) that gift is given or received or the amount of gift, etc.

 

[LdiJ]

Great, thanks again, very informative.

If I understood correctly, if someone give a gift to a minor as cash only (not check) (currently below $15K) then can the minor's parents keep that cash as it is (in a safe deposit box) and give that cash to the minor once the minor becomes major then it is not acceptable. Is it true?

No, that is not true. That is simply the parents managing the minor's money...assuming that the gift was from someone other than the parents.

For a major, if a gift (below $15K) is given as check (or cash) then can the major use that gift for any purpose including cashing that check and save the cash in his/her safe, etc. for the rest of his/her life? If saved like that as cash (which may show that the major has no present interest in the gift), still the gift tax exclusion applied for the donor of that gift?

First, gift taxes and gift tax returns only apply to the giver. What someone does with the money after it has been gifted to them is irrelevant as far as the person giving the gift is concerned.

If someone give gift (below $15K) to a major, can the major gift that money to someone else as gift, now or any time in the future, even if that major has no other income at any time during those years?

Yes, once someone has money, they can do whatever they like with it...including gifting it to someone else.

Can a major receive gift (below $15K) as check or cash (such as western union) from someone in another country then can the major use that gift in the same way as it is given from someone within the USA?

Yes

Can a gift be given, to a major, in the form of cash only (not check)? I am asking this question because there is no way to prove (as in the case of check or wire transfer, etc) that gift is given or received or the amount of gift, etc.

There are no laws against gifting cash. It could possibly get a bit complicated for one reason or another, but there are no laws against it.

 

[Taxing Matters]

Great, thanks again, very informative.

If I understood correctly, if someone give a gift to a minor as cash only (not check) (currently below $15K) then can the minor's parents keep that cash as it is (in a safe deposit box) and give that cash to the minor once the minor becomes major then it is not acceptable. Is it true?

That arrangement, as you described it, would mean the kid doesn't get any access to it until he is an adult and thus is essentially a form of trust with the parents as trustee and would be the gift of a future interest. That would not qualify for the $15,000 annual gift tax exclusion.

But the Code does put in an exception that effectively covers putting the money into an account governed by a state Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). Some states have UGMA, others have UTMA; they are very similar in most respects. The parents can be the custodians of that UTMA/UGMA account and the kid would automatically get the money when he or she turns 18 or 21 depending on the state. And that gift would qualify for the $15,000 annual gift tax exclusion.

For a major, if a gift (below $15K) is given as check (or cash) then can the major use that gift for any purpose including cashing that check and save the cash in his/her safe, etc. for the rest of his/her life? If saved like that as cash (which may show that the major has no present interest in the gift), still the gift tax exclusion applied for the donor of that gift?

The donee once he or she has it may use it however he/she likes and it does not affect the $15,000 annual gift tax exclusion. He can save it in any way he wants, including in stacks of bills under his mattress (though I'd say that's not a wise choice). The key to the present interest is that the donee has immediate possession and use of the money or property to do with as he or she wants. What he or she does with it from there is up to him/her. But if you set up some kind of arrangement or condition that delays the donee from possession or use of the property that is likely a gift of a future interest and that would not qualify for the annual exclusion.

If someone give gift (below $15K) to a major, can the major gift that money to someone else as gift, now or any time in the future, even if that major has no other income at any time during those years?

Sure, the donee can later give it to someone else. That gift would then be subject to the same gift tax rules. One thing to note: if Amy gives Bill $10,000 with the agreement or understanding that Bill will then turn around and give that $10,000 to Cindy the tax law will treat it as though Amy gave a gift directly to Cindy. This rule deals with the problem of people trying to get around the annual exclusion by routing gifts through different people.

Can a major receive gift (below $15K) as check or cash (such as western union) from someone in another country then can the major use that gift in the same way as it is given from someone within the USA?

Yes, for the donee the rules are the same regardless of whether the donor is in the U.S. or in another country. There are no tax consequences for the donee. But for the donor, if he or she is not a citizen or resident of the U.S., where and how the gift is made matters a great deal as to whether the nonresident is even subject to U.S. gift tax. If the nonresident is subject to the tax, he or she gets a much, much smaller unified credit than the $11.58 million credit that citizens and residents get.

Can a gift be given, to a major, in the form of cash only (not check)? I am asking this question because there is no way to prove (as in the case of check or wire transfer, etc) that gift is given or received or the amount of gift, etc.

Gifts may, of course, be given in cash. The same gift tax rules apply to gifts of cash as to gifts of any other property.

 

[Taxing Matters]

No, that is not true. That is simply the parents managing the minor's money...assuming that the gift was from someone other than the parents.

I disagree. See my previous reply as to why.

 

[LdiJ]

I disagree. See my previous reply as to why.

I don't think that I was contradicting your previous reply. I was talking about a situation where the child received a gift from a non-parent, and then the child's parents chose to manage that gift by putting it somewhere where the parents controlled it. How would that impact the giver of the gift? The giver had no control over the parent's actions.

 

[Taxing Matters]

I don't think that I was contradicting your previous reply. I was talking about a situation where the child received a gift from a non-parent, and then the child's parents chose to manage that gift by putting it somewhere where the parents controlled it. How would that impact the giver of the gift? The giver had no control over the parent's actions.

In that case I would agree that the gift was a gift of a present interest. But if the donor arranges with the parent to keep it out of the kid's hands until the kid is older then it is not a gift of a present interest; that's a trust like arrangement and the gift of a future interest.