Q. Due to the laziness of an estate lawyer, all the money(about 200 thousand) from a medical malpractice case is coming in a check to me personally. I originally wanted my daughter to receive 50 thousand of the amount and my grandaughter to receive 25 thousand. How do I open an investment account for them without having to pay taxes?
A. The easiest solution is to open an account for each and deposit $12,000 in each account per year until it gets up to where you want it to be. Then, you won't have to worry about filing any extra tax returns. If you are married, you can deposit up to $24,000 per year in each person's account.
HOWEVER, if this is unacceptable, then you have two other options.
Option 1 - give each person $12,000 (or $24,000 if you are married) and then give a different relative (trusted sibling?) $12,000 (or $24,000 if you are married) and instruct the sibling to give the money to the intended party. This 3rd party will have to be very trustworthy. The IRS frowns on this method as it "goes around" their gift laws, so even though it is commonly done, I don't recommend it.
Option 2 - Give the total amount to each person now. You will have to file a form 709 "Gift Tax Return" (see link below). It is not exactly simple, but at least it will NOT cause tax due. The first $1,000,000 of gifts you give in your lifetime (that are over $12,000 if you are single and $24,000 if you are married) will not trigger a tax.
If you are single, your 'gift tax amount' will be $38,000 ($50,000-$12,000) for your daughter and $13,000 ($25,000-$12,000) for your granddaughter for a total of $51,000 which is substantially below the $1,000,000 limit. This means you can still give $949,000 for the rest of your life without triggering any gift taxes.
If you are married, you will incur $26,000 ($50,000-$24,000) plus $1,000 ($25,000-$24,000) or a total of $27,000. Better yet, just give your granddaughter $24,000 and the last $1,000 next year.
Keep in mind that any amount on a gift tax return will lower your estate threshhold. Meaning, if the threshold for estate tax is $2,000,000 when you die (it changes almost every year), the first $2,000,000 of estate value will not trigger the estate tax. However, if your lifetime gift tax is $100,000, then the threshold drops to $1,900,000.
HOWEVER, if this is unacceptable, then you have two other options.
Option 1 - give each person $12,000 (or $24,000 if you are married) and then give a different relative (trusted sibling?) $12,000 (or $24,000 if you are married) and instruct the sibling to give the money to the intended party. This 3rd party will have to be very trustworthy. The IRS frowns on this method as it "goes around" their gift laws, so even though it is commonly done, I don't recommend it.
Option 2 - Give the total amount to each person now. You will have to file a form 709 "Gift Tax Return" (see link below). It is not exactly simple, but at least it will NOT cause tax due. The first $1,000,000 of gifts you give in your lifetime (that are over $12,000 if you are single and $24,000 if you are married) will not trigger a tax.
If you are single, your 'gift tax amount' will be $38,000 ($50,000-$12,000) for your daughter and $13,000 ($25,000-$12,000) for your granddaughter for a total of $51,000 which is substantially below the $1,000,000 limit. This means you can still give $949,000 for the rest of your life without triggering any gift taxes.
If you are married, you will incur $26,000 ($50,000-$24,000) plus $1,000 ($25,000-$24,000) or a total of $27,000. Better yet, just give your granddaughter $24,000 and the last $1,000 next year.
Keep in mind that any amount on a gift tax return will lower your estate threshhold. Meaning, if the threshold for estate tax is $2,000,000 when you die (it changes almost every year), the first $2,000,000 of estate value will not trigger the estate tax. However, if your lifetime gift tax is $100,000, then the threshold drops to $1,900,000.
Whats the best way to give someone $50,000 when it comes to taxes?
Q. A hypothetical question completely, because I dont even have $2000 haha, but I dont understand how this works. If $50,000 was gifted, what is the gift tax percentage that would apply to it? Is there a more monetarily correct way of gifting $50,000 besides $13k per year?
A. There is no gift tax due until lifetime gifts exceed $1 million. If the total of the donor's estate and lifetime gifts is less than $1 million, there is no reason not to give $50,000 all at once.
If the estate plus gifts is more than $1 million, the donor should either use the annual $13,000 exclusion ($26,000 if married and electing gift-splitting), or in the case of payments for medical or educational expenses, those expenses can be paid by the donor directly with no gift tax or estate tax implications.
Also, if the donor is funding a qualified tuition plan (529 plan), five times the annual exclusion amount can be given ($65,000) and it will be deemed to be made over five years with no gift tax or estate tax implications.
If the estate plus gifts is more than $1 million, the donor should either use the annual $13,000 exclusion ($26,000 if married and electing gift-splitting), or in the case of payments for medical or educational expenses, those expenses can be paid by the donor directly with no gift tax or estate tax implications.
Also, if the donor is funding a qualified tuition plan (529 plan), five times the annual exclusion amount can be given ($65,000) and it will be deemed to be made over five years with no gift tax or estate tax implications.
Want t send a gift card to a friend. How much should I give?
Q. I have a classmate who got married and delivered a baby after graduation. Now she bought her new house. I was unable to attend any of the events cause I live in another county. After I said sorry to her again, I am thinking of sending her a gift card finally. What is the appropriate amount to give as a gift? Is $50 enough? Or $100 is more decent?
A. How much can you afford? If you have missed a couple of other events because of distance that tells me that you don't own your own jet. You want to send a card, so that tells me you have at least $3. You call her a classmate, not friend, so I'm thinking an amount that will actually buy something useful--$25, but not extravagant--$100. I hope that helps!
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