Gifted $20,000 for education/productive use, questions about taxes
June 28, 2018 11:49 PM Subscribe
I have been gifted $20,000 and have questions about the amount and what I can expect tax-wise.
A distant relative passed away and since the person was single, another relative was put in charge of all of his possessions/finances. The person left behind some monies, leaving it to the relative to find good ways to use it. The relative has gifted me $20,000 to use towards education or something equally productive.
I believe in the past, someone could give another up to $14,000 (I think) in one calendar year without any big tax hits (or is that whole 14K-in-one-year thing more focused on the giver rather than the receiver?)
If I deposit this check for 20K, am I going to get hit for it during tax time?
Will I pay a lot more because it’s greater than $14K?
Does it make sense to see if she could instead gift a check this year of 14K and then a check for 6K next January?
This is in the U.S.
Thank you for any help and/or advice you can send my way.
A distant relative passed away and since the person was single, another relative was put in charge of all of his possessions/finances. The person left behind some monies, leaving it to the relative to find good ways to use it. The relative has gifted me $20,000 to use towards education or something equally productive.
I believe in the past, someone could give another up to $14,000 (I think) in one calendar year without any big tax hits (or is that whole 14K-in-one-year thing more focused on the giver rather than the receiver?)
If I deposit this check for 20K, am I going to get hit for it during tax time?
Will I pay a lot more because it’s greater than $14K?
Does it make sense to see if she could instead gift a check this year of 14K and then a check for 6K next January?
This is in the U.S.
Thank you for any help and/or advice you can send my way.
Although gifts are not taxable to the recipient, any income you earn ON the gift would be. So like savings, any investment returns, etc. You could look into setting up a 529 fund for yourself, which is a tax-advantaged education fund, and have the executor deposit the check directly there. Then you can withdraw it for any qualified educational use, including computer equipment and Internet.
posted by basalganglia at 3:13 AM on June 29, 2018
posted by basalganglia at 3:13 AM on June 29, 2018
Are you sure this is a gift rather than an inheritance? Inheritance taxes are different than gift taxes.
posted by ZabeLeeZoo at 4:49 AM on June 29, 2018 [1 favorite]
posted by ZabeLeeZoo at 4:49 AM on June 29, 2018 [1 favorite]
There are no federal inheritance taxes; only a handful of states have an inheritance tax. It sounds like the bequest was to the other relative, who then gifted the money to you, so the transfer to you likely would not be subject to any state inheritance tax, but you can ask a local tax advisor or lawyer about your specific circumstances.
posted by melissasaurus at 5:38 AM on June 29, 2018 [2 favorites]
posted by melissasaurus at 5:38 AM on June 29, 2018 [2 favorites]
Agree with the above, that you should look into whether it would be considered a gift or an inheritance - probably none of us are familiar enough with your situation (and the way the will was written) to know, but it'd be a straightforward question for a lawyer.
If it's a gift: gift taxes are likely a non-issue, although they're often misunderstood.
They're somewhat confusing because you have to file a tax form to report the gift if it exceeds $14,000 but nobody actually starts paying taxes until that person has given at least $5.49 million (not even counting that $14k/receipient/year exclusion) over the course of their lifetime. If that person is not likely to be giving in that range, then there is nothing to worry about - just make sure the paperwork is in order, then don't give it another thought.
On the state level - I believe only Connecticut and Minnesota collect gift taxes, so if you or the giver are in one of those states, make sure to look over the appropriate statues as well (but it's also likely to be a non-issue).
posted by mosst at 6:59 AM on June 29, 2018
If it's a gift: gift taxes are likely a non-issue, although they're often misunderstood.
They're somewhat confusing because you have to file a tax form to report the gift if it exceeds $14,000 but nobody actually starts paying taxes until that person has given at least $5.49 million (not even counting that $14k/receipient/year exclusion) over the course of their lifetime. If that person is not likely to be giving in that range, then there is nothing to worry about - just make sure the paperwork is in order, then don't give it another thought.
On the state level - I believe only Connecticut and Minnesota collect gift taxes, so if you or the giver are in one of those states, make sure to look over the appropriate statues as well (but it's also likely to be a non-issue).
posted by mosst at 6:59 AM on June 29, 2018
Here are the IRS resources you are looking for. The giver pays gift taxes. The estate pays estate taxes. Recipients pay neither.
Gifts above the annual cutoff count towards the eventual estate tax exclusion, but that exclusion is literally millions of dollars. Do not worry.
posted by Huffy Puffy at 7:01 AM on June 29, 2018 [1 favorite]
Gifts above the annual cutoff count towards the eventual estate tax exclusion, but that exclusion is literally millions of dollars. Do not worry.
posted by Huffy Puffy at 7:01 AM on June 29, 2018 [1 favorite]
This thread is closed to new comments.
posted by melissasaurus at 1:59 AM on June 29, 2018 [4 favorites]