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Small company Exemptions federal taxes

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limpyL

Member
What is the name of your state?md

I have looked at Pub 529 https://www.irs.gov/publications/p529 i would like to make sure I'm understanding this correctly..

A family member is needing financial help expected to last for 2+ years..

1) can a small company pay for monthly car insurance, vacations (if a company CC is used for any part of the vacation is it considered a company function which does not allow for non employees) and write them off as exemptions? what is the penalty?

2) if a monetary gift over the 14,000 limit was given and not reported to the IRS what is the penalty of that?

3) What is the penalty IF this "income" is not reported as income on taxes??

4) Can a tag of "personal loan" be used to get around the regular monthly income?

Thank you in advice..
 
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LdiJ

Senior Member
What is the name of your state?md

I have looked at Pub 529 https://www.irs.gov/publications/p529 i would like to make sure I'm understanding this correctly..

A family member is needing financial help expected to last for 2+ years..

1) can a small company pay for monthly car insurance, vacations (if a company CC is used for any part of the vacation is it considered a company function which does not allow for non employees) and write them off as exemptions? what is the penalty?

2) if a monetary gift over the 14,000 limit was given and not reported to the IRS what is the penalty of that?

3) What is the penalty IF this "income" is not reported as income on taxes??

4) Can a tag of "personal loan" be used to get around the regular monthly income?

Thank you in advice..
Apparently you plan to loan a family member a monthly amount of money for two years. If that is the case, if you actually expect to eventually be repaid, then it would not be a business expense at all. It would just be a loan.

If you intend to give the family member the money rather than loan the money, then again, it would not be a business expense it would be a gift. In that instance if it added up to more than 14k annually, then a gift tax return would need to be filed, but no gift tax would be owed unless you were over your lifetime exclusion for gifting (currently over 5 million dollars).

In neither instance would the money be taxable income to the recipient of the gift.
 
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Taxing Matters

Overtaxed Member
1) can a small company pay for monthly car insurance, vacations (if a company CC is used for any part of the vacation is it considered a company function which does not allow for non employees) and write them off as exemptions? what is the penalty?
Paying for personal expenses of the owner (insurance for personal car, vacations, etc) are not a deductible business expense. Nor can the company deduct gifts made to a family member. If you deduct expenses that you are not entitled to deduct, you can face at least a negligence penalty of 20%, and may get hit with the 75% fraud penalty, plus interest. There is also a potential for criminal prosecution for tax evasion if the IRS considers it significantly egregious.

Moreover, if the business is a limited liablity entity like a LLC or corporation then paying your personal expenses from the business or paying out gifts can contribute to losing the limited liability protection of the business.

Bottom line here is this: you really do not want to make such payments from a business, and you certainly do not want to try deducting them as business expenses on your return.


2) if a monetary gift over the 14,000 limit was given and not reported to the IRS what is the penalty of that?
First of all, there is no good reason not to report the gift. Unless you plan on giving away during your lifetime or at death well over $5 million you will not have any federal estate gift taxes to pay. When you give in total more than $14,000 in gifts to any one person during the year the amount over the $14,000 is called a taxable gift. This is the part that the gift tax law is concerned with. Until you have made gifts exceeding the unified credit amount (11.18 million for 2018, and will be inflation adjusted for future years, but after 2025 will drop down again to something over $5 million) all that the taxable gift does is reduce your unified credit.

Second, the failure to file most federal tax returns, including a gift tax return, results in a penalty of 5% of the unpaid tax each month the return is late, with a maximum penalty of 25%. This penalty is reduced by the amount of the failure to pay penalty assessed for the same months. Of course, if not tax is due, no late filing penalty is charged. There is a remote chance of being criminally charged for willful failure to file, but unless actual tax is being avoided, that's not likely. The problem with not filing the returns is that the statute of limitations for the IRS examine the return does not start to run, with the result that years later, even at your death in an estate tax audit, the IRS can examine all the gifts you made and may decide the value of those gifts were larger than what you would have claimed on the return at the time had you filed it. That's not a big problem with cash gifts, but is a problem for gifts of property. In short, you or your estate can find itself facing problems with the IRS on a later gift or estate tax return because of failing to file returns for earlier taxable gifts even though those earlier returns had no tax.


3) What is the penalty IF this "income" is not reported as income on taxes??
What income? If you are talking about gifts made to the family member, gifts are never taxable income to the person receivng the gift.

4) Can a tag of "personal loan" be used to get around the regular monthly income?
If you make a bona fide loan to the family member, that loan is not taxable income to the familly member so long as they pay it back. But you would end up with interest income to include on your return. If this purported loan is a sham and what is really going on is a gift, the tax law will treat it as a gift.
 

limpyL

Member
Taxing Matters.. Thank you.. That is just what i was interested in.

Thank you for the quick reply.

what if i dont expect to ever be repaid? can it just be said i am and case close?

If The income is over $14,000 it HAS to be reported to IRS? There is NO concern with the gifts being over 5 million.. I hope i understand you correctly.

Would this income be counted against them towards child support/divorce SSI/SSDI issues??
 
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Zigner

Senior Member, Non-Attorney
Thank you for the quick reply.

what if i dont expect to ever be repaid? can it just be said i am and case close?

If The income is over $14,000 it HAS to be reported to IRS? I hope i understand you correctly.

Would this income be counted against them towards child support/divorce SSI/SSDI issues??
Now we're at the crux of the matter...somebody's trying to avoid paying support.
 

LdiJ

Senior Member
Thank you for the quick reply.

what if i dont expect to ever be repaid? can it just be said i am and case close?

If The income is over $14,000 it HAS to be reported to IRS? I hope i understand you correctly.

Would this income be counted against them towards child support/divorce SSI/SSDI issues??
Again, the money would NOT be income. If you gift more than 14k to a single person a gift tax return has to be filed.

It would definitely effect SSI. It might effect SSDI if they think that you are doing it to hide actual wages. A family law court judge might or might not consider it to be income for child support purposes. The devil is in the details there.
 

limpyL

Member
that was the part I felt guilty to ask them.. would be pointless if their income would be reduced because of it.. My main concern were the IRS penalties.. Not a fan of Al Capone.. lol

Thank you all..
 

Taxing Matters

Overtaxed Member
what if i dont expect to ever be repaid? can it just be said i am and case close?
If you don't expect to ever be repaid then it is not a loan and the IRS will not treat it as a loan. It is a gift.

If The income is over $14,000 it HAS to be reported to IRS?
If you make your family member gifts during the year that in total exceed $14,000 then the excess over $14,000 is a taxable gift. If you make any taxable gifts during year you must file a federal gift tax return. Once again, that gift is not income to the family member for federal income tax purposes.

There is NO concern with the gifts being over 5 million.
Then there is no reason to fear filing a federal gift tax return. The taxable gift will just reduce that unified credit ($10.18 million currently, will drop back down to something over $5 million after 2025).

Would this income be counted against them towards child support/divorce SSI/SSDI issues??
If the real problem your family member is trying to avoid is having child support problems as a result of the gifts, he or she really ought to discuss with a family law attorney.
 

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