Taxes... help on gifting

[JodiR]

My in laws want to gift money to their kids to avoid paying taxes on proceeds they received and would pay taxes on. Can this be done?

 

[RachelEllen]

Yes and no. Each individual in-law can gift up to $13,000 to each individual child per year. So, for example, a husband and wife can gift up to $52,000 to a child and their spouse per year.

This avoids the money being taxable as income to the giftee. Its unclear from your post if the in-laws are trying to avoid some sort of tax to themselves. The giftor can't avoid income tax on the money with this method.

 

[JodiR]

The in laws are being taxed on $25,000 of proceeds they received and want to lower their tax liability by doing something with that money.

 

[cvjw]

Yes, it can be done - my inlaws gift money to us every year. There used to be a $1,000,000 cap on what a person can gift to his/her family over their lifetime, but this has gone away. The yearly amount to gift usually goes up by around $1000 per year - this is a fantastic way to get around paying the death tax to the IRS - which is scheduled to be 55% next year (I think).

 

[JodiR]

I know that they can gift the money, but will that help their (the giftor) tax liability?

 

[mjlewis23]

They can definitely gift the money, but will still have to pay taxes on the gain on investments. You don't actually get a deduction for gifting. The only way they can decrease their tax liability would be to gift the money to a charity.

 

[a1tinkfans]

They can definitely gift the money, but will still have to pay taxes on the gain on investments. You don't actually get a deduction for gifting. The only way they can decrease their tax liability would be to gift the money to a charity.

 

[PatsMom]

At that amount, there are no gift tax implications. As far as the income tax, it is owed by the recipient of the gain. Only way to avoid that would be to gift the asset before it is sold. For example, if you have $25,000 of IBM stock and our tax basis is zero, you could gift the stock to the children. They could sell it and they would owe the capital gains tax. Special rules apply to gifting assets to children under a certain age - I think its 23 or 24.