Today TaxMama hears from Jimmy in Georgia, who just got lucky. “If someone gives me $1 million as a one time gift, will I be taxed on the money? If so, how should I receive the gift to eliminate paying taxes on the money? Should I get it in stock, bonds, or in cash? I need about $250k to pay bills. I need about $200,000 to purchase a new house, etc.”
Do you really know someone who wants to just give a you million dollars? Just because you’re so cute? Well, introduce me, please!
Seriously though, generally, when someone gives you a gift, you get it free and clear. You don’t need to worry about taxes of any kind. You might have to pay income taxes, though, if you get stocks or bonds. Your best bet is to get the gift in cash.
The tax obligation falls on the person giving you the gift. He or she will have to pay gift tax on any part of the gift that exceeds their unified credit. When it comes to gifts, each person may make a total of $1,000,000 worth of taxable gifts during a lifetime without paying gift taxes.
If your benefactors have already made taxable gifts in the past, it’s quite likely they will have to pay some gift taxes on the gift. (Taxable gifts are gifts over the annual gift tax limit, which is $13,000 per person in 2009.)
Hopefully, if they have this much money to give away, they will be working with a good tax professional who is very familiar with gift and estate tax laws.
But beware, if they do not pay the gift taxes on this gift, you might find yourself paying them yourself. And the cost could be substantial – perhaps even half the gift, if you include IRS and state taxes. Make sure you get paperwork to:
1) Prove this is a gift.
2) Identify the source of the gift.
3) Proof that a gift tax return (Form 709) has been filed – and the taxes paid, if applicable.
Other than that, enjoy your new freedom from debt!
And remember, you can find answers to all kinds of questions about gifts and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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