Get your taxes done using TurboTax

Don’t dittle around trying to make the transaction look like something it’s not. Trying to hide a transaction can sometimes be illegal even if the transaction itself is perfectly legal.

 

Simply give your daughter a free gift that does not need to be repaid.  If you are married, you and your spouse may each give your daughter $16,000 a year without triggering the requirement to file a gift tax return. If $32,000 is not enough to buy the car your daughter wants, your daughter needs a talking to, not a free car. If you do make a gift of more than $16,000 per person, file the gift tax return. Actual tax is almost never required, but the gift must be reported.

 

Or, make the transaction a real loan, prepare a loan document and sign it, and charge your daughter interest.  You can make the terms anything you like. However, the IRS requires people to conduct their business in a businesslike manner, and you will be required to report income equal to the interest that you would have received if you charged the IRS minimum rate, even if you don’t charge interest. The applicable federal rate for September is 3.1%.

 

Or, make it partly a gift and partly a loan.  You could forgive part of the loan balance next year and call that an additional gift.