Giving money away

[Ursa Majoris]

So....I have a savings investment maturing next year and want to split it equally between my two kids. It's not a big deal, it will amount to maybe $6,000 apiece, $12,000 total, less tax (it's a tax-deferred savings vehicle).

 

Anyone know if the kids would then have to pay tax on it after I've already done so at the time of issue? Would it count as income for them? How much can I choose to give away like this without the taxman taking a second bite out of it?

 

TIA.

[yo mama]

So....I have a savings investment maturing next year and want to split it equally between my two kids. It's not a big deal, it will amount to maybe $6,000 apiece, $12,000 total, less tax (it's a tax-deferred savings vehicle).

 

Anyone know if the kids would then have to pay tax on it after I've already done so at the time of issue? Would it count as income for them? How much can I choose to give away like this without the taxman taking a second bite out of it?

 

TIA.

you can gift 12K - per kid, per year - without gift tax consequences. Your wife can do the same.

 

As far as federal income tax consequences go, any deferred income taxes would be payable by them if/when they become due. But no income tax liability should be triggered by the gift itself. But you might have some income tax consequences at maturity - don't have enough facts to say for sure.

Edited December 11, 2007 by yo mama

[driveby]

Oh, to your kids huh?

 

[Chief Dick]

Dad?

[Avernus]

Oh, to your kids huh?

 

 

http://s29.photobucket.com/albums/c279/SBr...6/iwantthat.jpg

[Atlanta Cracker]

There is often quite a bit of confusion when it comes to gifts and taxes. That's because the term gift tax is so common to the point that lots of people thinking about giving relatively large sums of money worry about tax consequences. First let me answer your question before I get too deep.

 

1. Kids wouldn't pay tax if you've already paid it.

2. It's not income to them.

3. No matter how much you give them there won't be any INCOME tax ramifications until the next year when they'll pay taxes on any realized gains or income since they received it. As long as it's less than $12,000 each (up to $24,000 each if given by you and your wife) then there are no GIFT tax ramifications either.

 

- One last note on the Income tax side of the deal. If you gift something that isn't liquidated where you pay taxes before you gift it then the kids cost basis in the property, stock, investment etc. is the same as what you paid and they pay taxes on the full gain when they sell it.

 

As for Gift Tax:

-This is basically a provision to prevent folks from giving their entire estate away right before they die to avoid Estate Taxes.

- You can technically give up to $1,012,000 in one lump sum without paying any tax by using part of your estate tax exemption (aka Unified Credit).

- The "Gift Tax" comes in when you either give more than that at once, combined total of over a million exclusion used in your lifetime, or decide not to use your exemption and pay the tax then.

- You're supposed to file a form if you give more than $12,000 to a single person in a year and want to use part of that Unified Credit.

 

For the most part, unless an estate of a very wealthy person gets audited, there is little chance anyone would notice a "gift tax" that should have been paid or form that should have been filed especially along the smaller end of the scale. AND, if your total estate is less than a million it's pretty much irrelevant anyway.

[Big Country]

I believe that the gift amount that is tax free goes up to $15,000 next year.

[yo mama]

I believe that the gift amount that is tax free goes up to $15,000 next year.

Nope. 2008 annual exclusion from gift tax stays at $12,000.

[Yukon Cornelius]

Nope. 2008 annual exclusion from gift tax stays at $12,000.

yup

[Ursa Majoris]

Thanks all. When in doubt, come to the Tailgate.

[TheShiznit]

There is often quite a bit of confusion when it comes to gifts and taxes. That's because the term gift tax is so common to the point that lots of people thinking about giving relatively large sums of money worry about tax consequences. First let me answer your question before I get too deep.

 

1. Kids wouldn't pay tax if you've already paid it.

2. It's not income to them.

3. No matter how much you give them there won't be any INCOME tax ramifications until the next year when they'll pay taxes on any realized gains or income since they received it. As long as it's less than $12,000 each (up to $24,000 each if given by you and your wife) then there are no GIFT tax ramifications either.

 

- One last note on the Income tax side of the deal. If you gift something that isn't liquidated where you pay taxes before you gift it then the kids cost basis in the property, stock, investment etc. is the same as what you paid and they pay taxes on the full gain when they sell it.

 

As for Gift Tax:

-This is basically a provision to prevent folks from giving their entire estate away right before they die to avoid Estate Taxes.

- You can technically give up to $1,012,000 in one lump sum without paying any tax by using part of your estate tax exemption (aka Unified Credit).

- The "Gift Tax" comes in when you either give more than that at once, combined total of over a million exclusion used in your lifetime, or decide not to use your exemption and pay the tax then.

- You're supposed to file a form if you give more than $12,000 to a single person in a year and want to use part of that Unified Credit.

 

For the most part, unless an estate of a very wealthy person gets audited, there is little chance anyone would notice a "gift tax" that should have been paid or form that should have been filed especially along the smaller end of the scale. AND, if your total estate is less than a million it's pretty much irrelevant anyway.

 

You also need to file a form for the 12K...it is called a Krummy letter.

[Ursa Majoris]

But you might have some income tax consequences at maturity - don't have enough facts to say for sure.

Not entirely sure how these things work but I'm guessing that when the check arrives it will be for the full amount and the savings company will file something with the IRS. I'll then need to declare the money as income on my 2008 taxes, since it's tax-deferred savings. I can't see me having to file a special payment for receipt of $12k or so.......or will I?

 

Giving it away in the meantime won't be taxable so that pretty much answers that question.

 

Again, thanks.

[yo mama]

You also need to file a form for the 12K...it is called a Krummy letter.

No you don't. (And its "Crummey" letter). Those are only used in connection with gifts to irrevocable trusts that provide the trust beneficiaries with certain withdrawal rights. I don't think that's what Ursa has cooking here.

Edited December 12, 2007 by yo mama

[yo mama]

Not entirely sure how these things work but I'm guessing that when the check arrives it will be for the full amount and the savings company will file something with the IRS. I'll then need to declare the money as income on my 2008 taxes, since it's tax-deferred savings. I can't see me having to file a special payment for receipt of $12k or so.......or will I?

 

Giving it away in the meantime won't be taxable so that pretty much answers that question.

 

Again, thanks.

My only point was that if the investment matures in your name, the income tax effects are your responsibility. You can then gift the cash to the kids, and they won't have any gift or income tax issues. If, however, you were considering gifting the underlying investments to the kids *before* maturity, then the income tax issues would be theirs to deal with. Still no gift tax issue, though.

Edited December 12, 2007 by yo mama

[Ursa Majoris]

My only point was that if the investment matures in your name, the income tax effects are your responsibility. You can then gift the cash to the kids, and they won't have any gift or income tax issues. If, however, you were considering gifting the underlying investments to the kids *before* maturity, then the income tax issues would be theirs to deal with. Still no gift tax issue, though.

Gotcha. No, the cash (and tax liability) will come to me. I'll simply hand the cash on (probably less tax).