topic Gift Tax in Education

Gift Tax

pburke0925 — Wed, 15 Jan 2020 17:37:13 GMT

For the past several years, I have been helping my daughter with her expenses while she started a new business in New York. My contributions were not included in any of her returns. I've tracked these payments in 'Mint', so I have a record of each transaction (i.e., credit cards, bank statements, etc.). In December of 2019, I transferred the remaining amount of her college fund from her name to mine. The amount transferred was the same as the total expenses paid to her. Can I simply call the transfer a reimbursement of expenses paid and disregard form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return)? I've read where each of us has an $11M limit before gift taxes apply, but this form appears so complicated I would need a tax accountant to complete the form.

Re: Gift Tax

Anonymous_ — Thu, 16 Jan 2020 04:14:33 GMT

@pburke0925 wrote:

My contributions were not included in any of her returns.

Although the contributions would not be included in her returns, a Form 709 should have been filed if the annual exclusion had been exceeded for any given tax year.

However, there is typically not much of a penalty for failing to file a gift tax return when there is no tax due.

Re: Gift Tax

pburke0925 — Thu, 16 Jan 2020 11:59:04 GMT

Years ago, I set up a college fund in my daughter's name that she paid taxes on gains every year. In 2019, we transferred those $s (more than $15k) from her name to mine (as reimbursement for previous years contributions). Does she also have to complete a Form 709 for this transfer?

Re: Gift Tax

Hal_Al — Fri, 17 Jan 2020 03:19:27 GMT

"Gift Tax" is somewhat of a misnomer. Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.
See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html

For 2019, a gift of more than $15,000 triggers the need for a gift tax return. I assume the "college fund" you sat up was a UTMA/UGMA ("she paid taxes on gains every year"). The money is legally hers, even though you are the custodian of the account. As such, a gift tax return is required if she gives the money back to you.

Re: Gift Tax

pburke0925 — Sat, 18 Jan 2020 14:38:35 GMT

Thank You for your responses. I realize you are saying "just complete form 709 b/c there probably won't be any gift taxes (if under $11.7M). I reluctantly plan to do that. Just so I'm clear, based on your answer(s) and everything I've read on your website (Thank You for the links), the IRS does NOT recognize this as a 'reimbursement' for contributions (i.e., loans) I gave to my daughter in previous years. We have to complete the form for all contributions AND reimbursements b/c they see them all as gifts, correct?

Re: Gift Tax

Hal_Al — Sat, 18 Jan 2020 14:56:49 GMT

Yes

Re: Gift Tax

pburke0925 — Wed, 22 Jan 2020 20:01:48 GMT

Update: I found a TurboTax article at https://turbotax.intuit.com/tax-tips/estates/the-gift-tax/L1sFpFeXV

In this article, there is a section called "What is a gift?" and here's what it states:

"For tax purposes, a gift is a transfer of property for less than its full value. In other words, if you aren't paid back, at least not fully, it's a gift."

With this article in mind, do you think the IRS still thinks I need to complete form 709 if my daughters transfer which was a reimbursement for previous years contributions to her company? Note: Transfer $s = Previous Years Contributions

Re: Gift Tax

Anonymous_ — Wed, 22 Jan 2020 20:21:02 GMT

If it is not a gift, then your only other option for the contributions would be a loan (or part ownership of her company).

If the contributions were in the nature of a loan, the IRS would probably consider it a gift loan (a loan where the interest foregone is actually a gift) and you would have imputed interest (at the Applicable Federal Rate, or AFR); interest that you should have reported as such on previous income tax returns.