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Living Expenses vs Gifts

Topic closed. 8 replies. Last post 8 years ago by grengrad.

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Piaceri's avatar - sarsony1
Republic of Texas
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Posted: September 1, 2008, 9:32 am - IP Logged

Just want to open for discussion the difference between gifting cash to someone vs paying the living expenses for someone, and how this affects gift taxes.

Scenario #1 - You win the lottery jackpot and you gift cash to your young adult child. Obviously this is subject to gift tax rules.

Scenario #2 - You win the lottery jackpot and purchase a condo for your young adult child to live in, plus you pay all the taxes, utilities, and other expenses for that housing.  Then you give the young adult access via debit card to one of your bank accounts to purchase food, gasoline for their car, clothing, and whatever other living expenses they incurr.  How much of this, if any, is subect to gift taxes? Would the answer be affected by whether this young adult child is in college or employed?

I've searched around the internet a bit, but have not been able to come up with the answer for this yet. Has anyone else done any research on this? 

I know, I know, ask my tax accountant - but like lawyers, they charge. Thud

face

singlewinnersinglewinnersinglewinner   

    DC81's avatar - batman39
    MI
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    Posted: September 1, 2008, 12:09 pm - IP Logged

    You'd think there would be exceptions for immediate family... Either parents to children, children to parents or children/parents to siblings. Best way to go about some of it I guess would just be to have it in your name or just *cough* under the table as long as it isn't a large amount or something that would flag the IRS. ;)

    As nuts and aburd as the gift tax is, it being 45% paid by the giver of the gift is even more nuts.

    You can't predict random.

      savagegoose's avatar - ProfilePho
      adelaide sa
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      Posted: September 1, 2008, 2:12 pm - IP Logged

      http://en.wikipedia.org/wiki/Gift_tax_in_the_United_States

       

      might help

      2014 = -1016; 2015= -1409; 2016 JAN = -106; FEB= -81; MAR= -131; APR= - 87: MAY= -91; JUN= -39; JUL=-134; AUG= -124; SEP = -123; OCT= -84  NOV=- 73 TOT= -3498

      keno historic = -2291 ; 2015= -603; 2016= JAN=-32, FEB= +12 , MAR= -86, APR = -77. MAY= -48, JUN= -29, JUL=-71; AUG = -52; SEPT= -43; OCT = +56 NOV = -33 TOT= -3297

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        NY
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        Posted: September 1, 2008, 9:39 pm - IP Logged

        Which part of "gift" is confusing? If you give somebody something it's either a gift or payment in exchange for something. If it's a gift, every penny of it is subject to the gift tax rules.

          GamerMom's avatar - tails

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          Posted: September 1, 2008, 9:40 pm - IP Logged

          I always thought if I won I would do lots of gift cards--gas, clothing and department store types--so they couldn't be traced.  Not sure if that would help out tax wise but it was just an idea.

            Piaceri's avatar - sarsony1
            Republic of Texas
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            Posted: September 1, 2008, 11:26 pm - IP Logged

            Which part of "gift" is confusing? If you give somebody something it's either a gift or payment in exchange for something. If it's a gift, every penny of it is subject to the gift tax rules.

            So I am providing food, clothing, and shelter for my adult children. How is that a gift?  How about I employ them to pull weeds in my flower beds, or vacuum and sweep the house every day? 

            How about a real life situation - I currently supply a room, a bathroom, food, car insurance, cell phone, gas money, etc for my 22 yr old daughter who is unemployed and not enrolled in college. I'm not rich by any means, but if you were to price all that on the open market, my guess is it's more than $12k value per year. Is this gift taxable? Do I throw my daughter out of the house before the IRS comes calling?

            The wikipedia link was informative and had some good links, but still didn't answer this question directly.

            While I would wish to  Cool avoid gift tax, I certainly don't wish to  Shifty evade gift tax.   Crazy 

            face

            singlewinnersinglewinnersinglewinner   

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              Kennesaw, GA
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              Posted: September 2, 2008, 7:48 am - IP Logged

              Just want to open for discussion the difference between gifting cash to someone vs paying the living expenses for someone, and how this affects gift taxes.

              Scenario #1 - You win the lottery jackpot and you gift cash to your young adult child. Obviously this is subject to gift tax rules.

              Scenario #2 - You win the lottery jackpot and purchase a condo for your young adult child to live in, plus you pay all the taxes, utilities, and other expenses for that housing.  Then you give the young adult access via debit card to one of your bank accounts to purchase food, gasoline for their car, clothing, and whatever other living expenses they incurr.  How much of this, if any, is subect to gift taxes? Would the answer be affected by whether this young adult child is in college or employed?

              I've searched around the internet a bit, but have not been able to come up with the answer for this yet. Has anyone else done any research on this? 

              I know, I know, ask my tax accountant - but like lawyers, they charge. Thud

              In senario #2- if you are supporting someone i dont see how that can be taxed.  They have not recieved any big checks to their bank account and your child is using all of your resources.  There is really nothing you are putting in their name..no deposits to their bank account..  So no there is no gift tax...  Regardless if the person is in college or employed, your giving them resources of your to use.  You can go far as to say in a common law marriage, or someone is dating, does the other partner have to pay gift taxes because you buy them food, or use their bank account..............?

                grengrad's avatar - nw rogue.jpg
                Raleigh
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                Posted: September 2, 2008, 9:43 am - IP Logged

                Both are taxable, but educational and medical expenses are gift tax exempt.

                 

                Letting immediate family live in a house that you own and use is generally not considered taxable. Buying a house for someone else to live in, and just putting it in your name on it, would definately be taxable. Since you are not giving them the house, you will be liable for gift tax on the value of renting the home.

                 

                Remember that the gift tax exemption of $12,000 stacks.

                So, if you are married, both you and your spouse can give your daughter $12,000 tax free for a total of $24,000 each year. (Gifts between you and your spouse are tax free)

                 

                Also, if your daughter gets married, then you and your spouse can each give $12,000 to your daughter, and each give $12,000 to your daughter's spouse, for a total of $48,000 each year.

                 

                Then, let's say your daughter has a kid. Now, you can give the normal $48,000 to your daughter as described above, plus another $24,000 that can be used for a trust fund for your grand kid.

                 

                This whole time you can be paying the medical insurance of your daughter and her family, and any college expenses they have with no tax penalty. Medical insurance could easily be another $6,000 a year that is tax free, and college education, might be $10,000-$30,000 a year.

                 

                With being able to give that much away per year, you should be safe,but if not, remember that you get an additional $1,000,000 exemption.

                Thisexemption means that you get to give away up to $1,000,000 beyond theannual exemptions through the course of your lifetime before beingtaxed.

                Your spouse also gets a $1,000,000 exemption.

                 

                Still not enough tax avoidance? Sign a notarized agreement BEFORE you win, with your daughter that says that she pays 15% of your lottery entry costs and will also receive 15% of your winnings. (or whatever percentage you want)

                This will irrefutably prove that you had a pre-existing agreement to share winning and allow you give a certain percentage of the winnings away, without any chance of paying a gift tax.

                Whether you actually charge her $0.15 cents for every ticket you buy is up to you, but the IRS will never know.

                The problem with this type of agreement is that you will have no control over the winnings going to her if she is having an unstable time in life or if you have a falling out.

                An example of this is the two women who grew to hate each other, but still had to share their winnings, because of a many many year old agreement.

                If you do make an agreement like this, make sure that it is not open ended, and does specify a date range.

                  grengrad's avatar - nw rogue.jpg
                  Raleigh
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                  Posted: September 2, 2008, 10:04 am - IP Logged

                  People often split winningtickets with their family and the government looks the other way, butthey do not have to, and if you want to split winnings unevenly, it isgoing to be pretty hard to convince a judge that your daughter has beenpaying 15% of your lottery ticket costs and should get 15% tax free,without a legal document showing it is true. The IRS may never push theissue, but it is better to be safe than sorry.