tax question

[Clocker]

If I cash out my annuity which is about 50k, pay taxes on it, and give it to my child. Does my child need to pay taxes on it also?

Does anyone have any ideas? And if you do where can i find it in the IRS code.

Thanks

 

[deftron]

pm CPA

 

[FoBoT]

this came up a week or so ago, the receiver of the gift doesn't have to pay tax on the gift

the giver is subject to limitation ($12K per year) , but you stated that you would pay the tax required. just don't be confused about the % of tax you have to pay, you might reconsider

pub 525

http://www.irs.gov/taxtopics/tc422.html
http://www.irs.gov/publications/p525/index.html

Gifts and inheritances. Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

clear as mud

 

[JS80]

Originally posted by: Clocker
If I cash out my annuity which is about 50k, pay taxes on it, and give it to my child. Does my child need to pay taxes on it also?

Does anyone have any ideas? And if you do where can i find it in the IRS code.

Thanks

Give him $12k a year so it doesn't go in the inheritance tax bucket if you expect to bequeath him a lot of money when you die. Otherwise you probably don't have to worry about it and you can just give him the entire thing. You can also "give" $12k to your wife and she can gift him $12k for a total of $24k.

 

[Clocker]

No matter what when I cash out my annuity it will be considered income so i will have to pay tax on it. My concern is that when i give it to my adult kid do I or does he have to pay tax again.

I think I understand Fobot's response the receiver of the gift doesn't have to pay tax on the gift. So does this mean I do not have to pay tax twice?

And for JS80 response giving him 24k is not an option right now. But thanks for the suggestions.

Any more comments??

 

[EagleKeeper]

when you gift it; you can only do about 12K per person per calendar year.

After that you are responsible for a gift tax.

Note that your spouse can also give the same amount to the same person under the same restrictions.

If the receiver is married, you can give to the spouse also.

 

[FoBoT]

he wants to know about the person receiving the gift, if the gift is taxable income to the person that got the cash

 

[iamwiz82]

Originally posted by: EagleKeeper
when you gift it; you can only do about 12K per person per calendar year.

After that you are responsible for a gift tax.

Note that your spouse can also give the same amount to the same person under the same restrictions.

If the receiver is married, you can give to the spouse also.

So both could give $12k each on Dec 31 and Jan 1?

 

[mugs]

Originally posted by: EagleKeeper
when you gift it; you can only do about 12K per person per calendar year.

After that you are responsible for a gift tax.

Note that your spouse can also give the same amount to the same person under the same restrictions.

If the receiver is married, you can give to the spouse also.

Now uh... where does the $1 million limit come in? I thought you only had to pay gift tax after you've hit a lifetime total of $1 million in gift tax-eligible gifts.

I researched this last year, and you actually helped me, but that part I don't remember very well.

 

[Dirigible]

Originally posted by: iamwiz82

Originally posted by: EagleKeeper
when you gift it; you can only do about 12K per person per calendar year.

After that you are responsible for a gift tax.

Note that your spouse can also give the same amount to the same person under the same restrictions.

If the receiver is married, you can give to the spouse also.

So both could give $12k each on Dec 31 and Jan 1?

I believe so. Meaning the OP could give away pretty much all the $$ without gift tax if he acts fast. He'd still have to pay the income tax.

 

[FoBoT]

yeah, the question is about the giftee, not the gifter

"Does my child need to pay taxes on it also? "

 

[dullard]

1) You would pay tax on cashing out the annuity if any are due.
2) You would pay tax on giving any gift of that size.

That is, you would pay double tax on that transaction, making it a really bad idea in most cases. Is there any way you can get a loan for your son where you cosign it instead? Heck, use the annuity as collateral if you need to. You'll be better off than double taxation.

Your son, won't pay taxes on any of this. You just pay double.

The posters above are mostly correct though. You can give him a large chunk now and a large chunk in Jan to help avoid the gift tax.

 

[marulee]

depends on how you give it ...