5 ms·

Why the heck private gifts are taxable and it is tolerated?

by FpUser 4y ago

shuckles 4y ago
That law is not particularly widely enforced, and it seems to only be written to pursue those who use it as a loophole around inheritance laws.
lotsofpulp 4y ago
In the US, gifts of up to $11M or maybe $12M are not taxable.
- greyface- 4y ago
  Notably, that's a cumulative lifetime limit, not per gift or per year.
  - theonething 4y ago
    That doesn't sound right The per year limit for 2023 is 17,000. A 11M lifetime limit would mean 647 years of giving. I think the 11M figure is just totally way off. Not sure where they are getting that from.
    - lotsofpulp 4y ago
      https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax https://www.irs.gov/businesses/small-businesses-self-employe... Scroll down to ”Basic Exclusion Amount for Year of Death” The gift giver pays the tax, but only after they give more than the lifetime amount.
      - theonething 4y ago
        So that's an estate tax upon death. But given we're talking about loans and gifts while a person is living, I think the correct tax to invoke is the gift tax that has a limit of $17,000 per year. https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes https://www.irs.gov/businesses/small-businesses-self-employe...
        lotsofpulp 4y ago
        If taxpayer A gifts taxpayer B $1M today, taxpayer B owes $0 in taxes to the US federal government. Taxpayer A also owes $0, assuming that is all they have gifted in their life. But they do have to file a form with the IRS tabulating the total they have gifted, minus the annual exclusion ($17k). Neither taxpayer A nor taxpayer B have a federal tax liability for gifting more than the annual exclusion amount. So I do not see how the gift tax, which would implicitly involve a tax liability for the gift, has a limit of $17k. Am I incorrect?
        theonething 4y ago
        > If taxpayer A gifts taxpayer B $1M today, taxpayer B owes $0 in taxes to the US federal government. If A is alive when that happens then that is wrong. B will be taxed on the amount of $1M - 17k because the gift tax applies not the estate tax. If A were dead and gifted B in their will, then you would be correct because the estate tax applies in this scenario. Again, since we're taking about loans and gifts while a person is alive in this thread, the first scenario of the gift tax applies.
        greyface- 4y ago
        This is incorrect. Taxpayers are allowed to apply their lifetime gift exclusion before death. Line 7 on Part 2 of Form 709. https://www.irs.gov/pub/irs-pdf/f709.pdf https://www.irs.gov/pub/irs-pdf/f709.pdf https://www.irs.gov/pub/irs-pdf/i709.pdf#page=20 https://www.irs.gov/pub/irs-pdf/i709.pdf#page=20
        theonething 4y ago
        I stand corrected. Thank you.
        lotsofpulp 4y ago
        A gift recipient does not owe tax, so taxpayer B never owes any tax for receiving a gift. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes https://www.irs.gov/businesses/small-businesses-self-employe... >Who pays the gift tax? > The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.
- theonething 4y ago
  You're off by a bit. It's 17,000. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances-1 https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
  - greyface- 4y ago
    That's the reporting threshold, not the total exclusion amount.
  - lotsofpulp 4y ago
    See “exemptions” section: https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States > Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($11.58 million for 2020).[9] For estates over that amount, however, such gifts might result in an increase in estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.
projectramo 4y ago
Because then your boss would just give you 99% of your salary as a gift.
sdenton4 4y ago
Because if you don't gifts become a very convenient way to perform money laundering?
toast0 4y ago
Because if they weren't, I'd gift my work to my employer and they'd gift me money to live on. And there would be a similar exchange of gifts with customers and suppliers, rather than purchases and subscriptions. The paperwork only starts when you gift one person more than $16k (2022 value) in one year, which is quite a large gift and the lifetime estate tax exemption is also very high (currently $12M), so even if you do need to file paperwork because a gift is taxable, the tax rate is likely to be 0% for almost everyone. And as much as people complain about death being taxable, most people don't have that many tears for the tax impact on people who had a $15M estate.
- giantg2 4y ago
  That would fail the bona-fide gift rule if the current obligations employers require were still in place.
- FpUser 4y ago
  I said "private". I employer gives you money out of his own pocket it is a valid gift. If the money came out of corporate account - that just does not qualify. But I understand the rest. I simply did not know that the rules are very reasonable. Myself I am in Canada not the US.
positr0n 4y ago
Private gifts are not taxed until it is over $12 million dollars (the estate tax limit). The IRS does require you to report it if it goes over $16k from one individual to another. This is solely to keep track of that $12M lifetime gift limit. Totally reasonable IMO unless you don't believe in inheritance taxes at all. so you could do $48k from a couple to their child and child's spouse.
- FpUser 4y ago
  Understood and yes it does sound reasonable. I still cringe a bit.
  - eddsh1994 4y ago
    In several European countries this is a trick to get around inheritance tax so, if you die several years after the gift, it's taxed as per inheritance.
    - sebzim4500 4y ago
      Yeah. In the UK it is a common trick to back date a gift to your children 7 years so you don't have to pay inheritance tax on it. Sometimes it needs to preparation, you need some sort of evidence that the gift happened 7 years before death, but faking that evidence is far from impossible.

Why the heck private gifts are taxable and it is tolerated?

by FpUser 4y ago

Why the heck private gifts are taxable and it is tolerated?

That law is not particularly widely enforced, and it seems to only be written to pursue those who use it as a loophole around inheritance laws.

lotsofpulp 4y ago

In the US, gifts of up to $11M or maybe $12M are not taxable.

greyface- 4y ago
Notably, that's a cumulative lifetime limit, not per gift or per year.
- theonething 4y ago
  That doesn't sound right The per year limit for 2023 is 17,000. A 11M lifetime limit would mean 647 years of giving. I think the 11M figure is just totally way off. Not sure where they are getting that from.
  - lotsofpulp 4y ago
    https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax https://www.irs.gov/businesses/small-businesses-self-employe... Scroll down to ”Basic Exclusion Amount for Year of Death” The gift giver pays the tax, but only after they give more than the lifetime amount.
    - theonething 4y ago
      So that's an estate tax upon death. But given we're talking about loans and gifts while a person is living, I think the correct tax to invoke is the gift tax that has a limit of $17,000 per year. https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes https://www.irs.gov/businesses/small-businesses-self-employe...
      - lotsofpulp 4y ago
        If taxpayer A gifts taxpayer B $1M today, taxpayer B owes $0 in taxes to the US federal government. Taxpayer A also owes $0, assuming that is all they have gifted in their life. But they do have to file a form with the IRS tabulating the total they have gifted, minus the annual exclusion ($17k). Neither taxpayer A nor taxpayer B have a federal tax liability for gifting more than the annual exclusion amount. So I do not see how the gift tax, which would implicitly involve a tax liability for the gift, has a limit of $17k. Am I incorrect?
        theonething 4y ago
        > If taxpayer A gifts taxpayer B $1M today, taxpayer B owes $0 in taxes to the US federal government. If A is alive when that happens then that is wrong. B will be taxed on the amount of $1M - 17k because the gift tax applies not the estate tax. If A were dead and gifted B in their will, then you would be correct because the estate tax applies in this scenario. Again, since we're taking about loans and gifts while a person is alive in this thread, the first scenario of the gift tax applies.
        greyface- 4y ago
        This is incorrect. Taxpayers are allowed to apply their lifetime gift exclusion before death. Line 7 on Part 2 of Form 709. https://www.irs.gov/pub/irs-pdf/f709.pdf https://www.irs.gov/pub/irs-pdf/f709.pdf https://www.irs.gov/pub/irs-pdf/i709.pdf#page=20 https://www.irs.gov/pub/irs-pdf/i709.pdf#page=20
        theonething 4y ago
        I stand corrected. Thank you.
        lotsofpulp 4y ago
        A gift recipient does not owe tax, so taxpayer B never owes any tax for receiving a gift. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes https://www.irs.gov/businesses/small-businesses-self-employe... >Who pays the gift tax? > The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.
theonething 4y ago
You're off by a bit. It's 17,000. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances-1 https://www.irs.gov/faqs/interest-dividends-other-types-of-i...
- greyface- 4y ago
  That's the reporting threshold, not the total exclusion amount.
- lotsofpulp 4y ago
  See “exemptions” section: https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States > Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($11.58 million for 2020).[9] For estates over that amount, however, such gifts might result in an increase in estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.

projectramo 4y ago

Because then your boss would just give you 99% of your salary as a gift.

sdenton4 4y ago

Because if you don't gifts become a very convenient way to perform money laundering?

toast0 4y ago

Because if they weren't, I'd gift my work to my employer and they'd gift me money to live on. And there would be a similar exchange of gifts with customers and suppliers, rather than purchases and subscriptions. The paperwork only starts when you gift one person more than $16k (2022 value) in one year, which is quite a large gift and the lifetime estate tax exemption is also very high (currently $12M), so even if you do need to file paperwork because a gift is taxable, the tax rate is likely to be 0% for almost everyone. And as much as people complain about death being taxable, most people don't have that many tears for the tax impact on people who had a $15M estate.

giantg2 4y ago
That would fail the bona-fide gift rule if the current obligations employers require were still in place.
FpUser 4y ago
I said "private". I employer gives you money out of his own pocket it is a valid gift. If the money came out of corporate account - that just does not qualify. But I understand the rest. I simply did not know that the rules are very reasonable. Myself I am in Canada not the US.

positr0n 4y ago

Private gifts are not taxed until it is over $12 million dollars (the estate tax limit). The IRS does require you to report it if it goes over $16k from one individual to another. This is solely to keep track of that $12M lifetime gift limit. Totally reasonable IMO unless you don't believe in inheritance taxes at all. so you could do $48k from a couple to their child and child's spouse.

FpUser 4y ago
Understood and yes it does sound reasonable. I still cringe a bit.
- eddsh1994 4y ago
  In several European countries this is a trick to get around inheritance tax so, if you die several years after the gift, it's taxed as per inheritance.
  - sebzim4500 4y ago
    Yeah. In the UK it is a common trick to back date a gift to your children 7 years so you don't have to pay inheritance tax on it. Sometimes it needs to preparation, you need some sort of evidence that the gift happened 7 years before death, but faking that evidence is far from impossible.