Discussion:Money from parents gift or income
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Discussion Forum Index --> Advanced Tax Questions --> Money from parents gift or income
Discussion Forum Index --> Tax Questions --> Money from parents gift or income
| 30 July 2009 | |
| T/p was asked by parents to manage their financial affairs while parents were overseas. Parents paid t/p $500 / month to perform these services. Parents paid out of a personal account and did not report as a deduction. Parents CPA told my client to not report the $500 / month as income because it is less than the annual gift tax exclusion. To me this does not sound like a gift because it was payment for services but I thought I would run it by the TA community. I would love to exclude the income if I thought it was legal! | |
| 30 July 2009 | |
| Why is the parent's CPA giving tax advice to your client who is not his client?
You are correct. Money earned and taxable. taxbilly | |
| 30 July 2009 | |
| This is why cpa's who don't know tax law should stick to accounting advice | |
| 30 July 2009 | |
| How much would such services would have cost the parents if they had hired an third party? | |
| 30 July 2009 | |
| While I agree that according to the letter of the law, at least a portion of this payment should be classified as income, how often does this actually happen in the real world?
I have an elderly neighbor lady for whom I bring in her mail, occasionally go to the grocery store and perform other miscellaneous tasks. I do this for the sake of being a good neighbor, and do not expect any compensation. However, she always insists upon giving me a few dollars for my trouble. If you follow the letter of the law, I should be reporting this as income, but since I know she is not taking any sort of tax benefit for it, it seems pointless for me to report since it might amount to a couple hundred dollars a year. Expanding upon AmirK's question, it's also possible that the amount being paid to perform these services greatly exceeds the value of the service provided. To this extent, I think you have a great arguement that at least a portion of the payments are a gift. | |
| July 30, 2009 | |
| Unbelievably, I wasn't going to say anything....! Parents cannot deduct it anywhere...and yes, while technically perhaps it is income, he's helping mom and dad. What prevents it from being a gift, tax free on both ends? Obviously if this is on the EA exam, as written, there's only one right answer, it's income. Alter the fact pattern slightly and you have wiggle room. | |
Death&Taxes (talk|edits) said: | 30 July 2009 |
| And if income, which as stated it appears to be, do you Batok it for SE purposes? | |
Harry Boscoe (talk|edits) said: | 30 July 2009 |
| "...but since I know she is not taking any sort of tax benefit for it, it seems pointless...."
What the...? | |
| 30 July 2009 | |
| So are saying I should write down every $1 she gives me for each day I bring in her mail, and keep track of all the change she allows me to keep when I go to the grocery for her amd report on my tax return? In all honesty, how many of us would do this?
My point regarding no tax benefit is that if she is somehow deducting this amount from her taxable income, I believe I have an obligation to report the amount she is paying me regardless of how small it is. However, if she is giving me the money for performing these menial tasks, for which I expect no compensation, I don't have a problem not reporting it, and I highly doubt the IRS would send me to jail for not doing so. | |
Harry Boscoe (talk|edits) said: | 30 July 2009 |
| What she can or can't do, does or doesn't do, with this expense is totally irrelevant to how you decide to treat it. That's all I wanted to say. | |
| 30 July 2009 | |
| Sorry if I came across snippy. I agree with you. I just think the answer to the initial question is not as black/white as everyone has made it out to be. In my personal opinion, it would be relatively easy for me to make an argument that at least a portion of the amount paid was a gift and should not be taxed. | |
Yt1300inHtown (talk|edits) said: | 30 July 2009 |
| Will the parents be isuing a 1099? | |
| 30 July 2009 | |
| How does this play out IRL? The IRS audits the TP. They go nuts, and look at every dollar that flows into his/her bank account. They see this $500, and ask about it. TP says it is a monthly gift. IRS agent is insane, and says "Whoa there, Madoff, you're managing your parents affairs, aren't you?" TP says, "Yes, because I'm a good son/daughter." IRS goes to parents and asks why they're paying son/daughter, and they say "We give lavish gifts." In what world would this ever get to the point where the TP gets assessed for this?
If it is not a gift, then parents could NEVER use the gift exclusion for money given to children because children will always do "odds and ends" for their parents, and the IRS coudl ALWAYS say that the money in question was in return for services rendered. | |
| July 30, 2009 | |
| Yt1300, individuals aren't required to issue 1099's. Fortunately. Yet, and don't suggest it either! | |
| July 30, 2009 | |
| Let's see, what they really should do *tongue is in cheek* is set up an LLC and transfer all their stuff into it, then write off the professional fees paid to son, along with whatever else they can think of. | |
| 30 July 2009 | |
| Aunt Diamond Diane has both a personal chef and a chauffeur. She can't deduct the payments to either of them. Do they have to claim their pay as income? | |
| July 30, 2009 | |
| Well, should mom have to declare the imputed income for those things, along with the bedroom activities provided to her husband and kids, not in that order? | |
Harry Boscoe (talk|edits) said: | 30 July 2009 |
| "...individuals aren't required to issue 1099's...."
Last I checked, individuals are definitely required to issue 1099s, when they make payments in the course of their trade or business. What happened to the undeclared value of Sarah Palin's wardrobe as taxable income, anyway? | |
Death&Taxes (talk|edits) said: | 30 July 2009 |
| And maybe Dad put a 200 AMP panel in son's house, paved his driveway, while Mom babysat for free. Maybe the $500 is cheap under the circumstances. We only have what the poster gives us to go by and as stated,($500 / month to perform these services) it is income.
Interfamily transactions are rife with such situations. We had a barbecue two weeks ago. Wife's son spent all day at the grill, cooking up a storm. Imputed income? Oh, and he did the electric for our kitchen and put electric service outside. But then we forked out the hall rental and DJ cost for his child's sweet 16 party. | |
Harry Boscoe (talk|edits) said: | 30 July 2009 |
| Is there a detail breakdown of the miscellaneous income reported on Bill Clinton's tax return? | |
| July 30, 2009 | |
| Sarah returned her clothes, or else Crow would have turned her in. Was Clinton receiving income or providing it? Who was providing services to whom? And would drycleaning a dress be a deduction? | |
Beangrinder (talk|edits) said: | 30 July 2009 |
| Agree with AmirK, what would a 3rd party be paid? Managing financial affairs could be something so simple as writing one check to a credit card company once a month all the way over to day trading their money. Claiming it all as income might be incorrect. | |
Harry Boscoe (talk|edits) said: | 30 July 2009 |
| But if you wanted to make a contribution to your IRA based on this *taxable compensation*...
PBR for the one who gets *the* right answer to this one!! | |
