Taxpayer asks:
My mom gave me money through my paypal account. There were 3 separate transactions totaling $380 but was non-business related, do I need to claim these transactions along with the other income from my business since they used my PayPal account?
Taxgirl says:
Absolutely not! Though I will take this opportunity to discourage you from commingling personal and assets… It just complicates things.
Gifts from friends or family are generally given out of love and affection and are not in exchange for other compensation or services. To make a gift, the gift-giver (referred to by IRS as the donor) must have a “donative intent” – in other words, the donor meant to give you something with no strings attached (if it’s a conditional gift, there might be income or other tax consequences).
Any U.S. citizen can give any other person up to $12,000 per person per year (in 2007) without any gift tax consequences. This right to make these tax free gifts is unlimited in terms of the number of donees – so you can give $12,000 to one person or $12,000 each to a million people. The IRS doesn’t care how many people you give the money to, just so long as you don’t exceed the $12,000 threshold. If you do, there may be estate or gift tax consequences.
There are generally no income taxes to the recipient of the gift. There are some exceptions (such as cancellation of debts or below-market loans) but as a rule, a gift of a thing such as cash or a car or Prada handbags (in case you’re wondering what to send your favorite taxgirl) will not result in income tax consequences.
So, tell your mom that she can keep those gifts coming – there are no income tax consequences to you. But she might want to send cash, check or a gift card. The PayPal account will just cause confusion down the road…
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
Hi,
A family member wants to give me more than $12,000. To avoid the gift tax, she wants to give the amount over $12,000 to another family member, who will then “gift” that amount to me. Does this cause any exposure to taxes for the parties involved?
Whether the other family member incurs gift tax is immaterial. IRS follows a “step transaction” audit process. By that, the SUBSTANCE overides the FORM of the transaction. Regardless of the step inserted in the middle, the substance — what really happened here – of this transaction is that the family member created a process to transfer more than $12,000 to you via a series of gifts. IRS will treat it as a single step. Suggestion: Give some in this tax year and the balance in 2010. Or, gift the full amount and use the excess over $12,000 (actually, it’s $13,000 for 2009) against his/her $1 million lifetime exemption.
My Mom wants to give me 100,000 to pay down my mortgage. Can we say this is a loan? Should I put her on title? I want to avoid the tax penalty. thanks!
A gift is a gift.
If you put your mom on the title, still a gift, as the obligation was yours. Even worse, unless she’s actually buying in, you’re gifting half of the property to her and she’s gifting you $100,000.
If it’s a loan, you must pay her interest equal to what would be expected in a bona fide transaction (in other words, a real loan) – that would be income to her. You must pay her back the $100,000 or it’s a gift.
All of that said, depending on your mom’s other circumstances, there may be no real estate or gift tax consequences to her. Of course, if she’s in a financial position to give you that much money, I’m guess there might be circumstances that deserve a second look. I highly recommend consulting with a tax pro before your mom hands over the cash.
I want to give my mom my car that’s worth about $10,000 Private Party Price (not retail price or trade in value price). What do I do in my taxes next year for this 2009 year? Do I claim it as a gift? Does she have to put it on her taxes too? Or perhaps I should sell it to her for $1? I live in California and she lives in Oregon. Thank you!