It’s TaxQuips time from TaxMama.com® .
Today TaxMama® wants talk to you about an issue raised by Jean Mammen, EA. She says that right around now, there is so much going on, helping refugees, the homeless, and others who have experienced adversity. So, let me give you some quick tips about the tax laws related to gifts.
Dear Family,
These are the questions raised by Jean Mammen, EA.
Here are some basic responses, with links to more details:
- Is a gift taxable?
Generally when you receive a gift, it is not taxable to you.
The person giving the gift should file a gift tax return, Form 709, if all the gifts they give you during the year are more than $16,000
- GoFundMe – again, the person setting it up, and also the recipient of the funds
This is a little more complicated. Set up the GoFundMe-type of account in the name of the recipient so all the funds go to an account for that recipient (their Social Security Number and signature authority). Do not give or promise anything to the donors (no e-books, cards, anything tangible) except, perhaps news of the progress of the person you are helping.
- Then the funds are tax-free to the recipient.
- There is no charity deduction to the donor (generous giver) – UNLESS the organization that set up the account is an exempt organization in good standing with the IRS.
- The recipient is able to get a tax deduction (or credit) if the funds are used to cover medical expenses or educational expenses.
- Full-ride scholarships, fellowships, etc. – tuition vs food and lodging amounts
The funds covering tuition, books, and class supplies are tax-free. The funds to cover food and lodging are taxable income.
For a student under age 24, you will need to file your own tax return, check the box if you are still your parents’ dependent.
And this income is subject to the “kiddie tax” rules. You will pay taxes on these amounts at your parents’ highest marginal tax rate.
- Direct-payment of school fees to schools, or medical fees to hospitals or doctors
Anyone may make a gift to anyone else – even if they are not related – see the GoFundMe notes above – they apply here, too.
When those funds are paid directly to a school (of any kind), or directly to medical providers there is no need to file a gift tax return, regardless of how much is donated on that person’s behalf. Beware if the beneficiary gets any of those funds refunded!
The interesting twist in this is – the beneficiary of these funds is considered to have received a gift – so they can claim the medical expense deduction, or the education credits.
- Would direct pay to an electricity company or utility be a good idea?
Interesting question. Yes, if you know someone who needs that kind of help. You can pay their bills directly.
But paying their utilities is not an exclusion from gift tax filing. So once you have spent over $16,000 in total gifts to or on behalf of that person (aside from just the utility bills), you must file a gift tax return. The money paid is tax-free to recipient.
- There are now articles in my local paper about refugees and asylees who need help with everyday bills
It’s a great kindness to help refugees and those seeking asylum. There will be a place in Heaven for you. (whichever Heaven you believe in). What are the tax consequences?
- If you help them directly – the gift tax rules apply, and you don’t get any kind of charitable contribution deduction – just gratitude
Note: This may change – Congress may pass some legislation to provide benefits to you. - If you work through a recognized charity and run the funds for housing arrangements through them – then you can get a charitable contribution deduction.
Make sure you submit your expenses to them and get a receipt for your “donations” – either monthly or annually.
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