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If somebody gives me reasonable advise or share important to me information.

Being attentive I would like to make a little gift or give some little (<100$) amount of money (cash/wire/online) for that

  1. How it would be classified by IRS?
  2. Which obligations originate with this matter for me and my party?
  3. How to do this in a most comfortable way to my party?
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All of this assumes that this relationship isn't as employer-employee relationship, which would require you to withhold taxes.

If you send them a small token of appreciation, and you are unable to record it as a business expense, or some other deductible expense, you don't have to be concerned about how they claim it. They decide if they want to risk claiming it was a gift, or if they want to record it as an expense. Even if you say some magic phrase that you think will impress the IRS, the recipient can still decide declare it as income. To have any hope of being able to treat it as a gift they would have to be able to demonstrate that there is a non-business relationship.

If you can claim it as a business expense, or a deductible expense, they will have to also claim it as income; because your documentation could point the IRS to their lack of documentation.

Giving them a check or sending the payment electronically will require them to claim it as an income, since an audit could require them to explain every line on their bank statements.

1

Generally, a one time thing is considered a gift. For the donor this is obviously not a deductible expense, except for some specific cases (for example promotional gifts under $25 to vendors can be deducted, if you're a business, or charitable contributions to a recognized charity).

However, if this is a regular practice - that would not be considered as a gift, but rather as a tax fraud, a criminal offense.

Being attentive I would like to make a little gift or give some little (<100$) amount of money (cash/wire/online) for that

Why? Generally, gift is exempt from income if no services were provided and the gift was made in good faith. In the situation you describe this doesn't hold. When the gift is exempt from income to the receiver - the donor pays the tax (in this case, below exemption the tax is zero). If the gift is not exempt from income to the receiver - it is no longer a gift and the receiver is paying income taxes, not the donor.

The situation you describe is a classic tax evasion scheme. If someone does it consistently and regularly (as a receiver, donor, or both) - he would likely end up in jail.

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  • "Generally, a one time thing is considered a gift." If a reader decides your advice saved her, say $10K, and was so happy, she sent you $100 in appreciation, isn't that taxable to you? The one-time-only doesn't change this. – JTP - Apologise to Monica Jun 15 '14 at 19:41
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    No, I don't believe it is taxable. If I'm not in a business of giving advices, don't ask for payment and don't issue invoices - someone sending me a gift card out of their own conviction is not income to me, it's a gift. If, however, I'm in a business of giving advices, but to every client I say "you don't need to pay me, but I do appreciate gifts" - then it is income. – littleadv Jun 15 '14 at 23:07
  • ok. So the distinction is whether it's solicited? You feel that "you helped me, here's a gift of less than $14K" is not taxable? – JTP - Apologise to Monica Jun 15 '14 at 23:34
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    @JoeTaxpayer the distinction, as always with fuzzy legal things, is facts and circumstances. You cannot expect people to declare every appreciation token they got as an income item. – littleadv Jun 16 '14 at 1:57
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Most people will never need to pay federal gift taxes. The federal gift taxes start after giving away 5.34 million over the course of your life. This number is adjusted annually for inflation. There are only two states that I know of which impose state gift taxes (Connecticut and Minnesota); in Connecticut, you need to start paying taxes if the lifetime value of your gifts exceed two million. In Minnesota, it starts at 1 million.

The federal tax is paid for by the person making the gift, unless other arrangements are made. There is an annual exclusion amount of approximately $14,000. You can give up to this amount to any number of recipients and it is not considered taxable. Therefore, when you give $100 to someone, it is not a taxable event.

If you do make a gift to an individual in excess of 14k, you'll need to file a gift tax return (IRS Form 709). When you file form 709, you won't need to pay taxes until the 5.34 million is exceeded. Instead, you can claim an exemption. Since most people don't exceed that amount, its rare to ever pay taxes even when exceeding the annual exclusion amount. The annual exclusion amount is adjusted each year for inflation.

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    There is no gift. The OP is paying someone for advice received. It doesn't matter if the money was solicited, the facts as presented suggest it's taxable income. – JTP - Apologise to Monica Jun 14 '14 at 16:00
  • Good point. I should have questioned whether it was a gift in the first place. – RohitJ Jun 14 '14 at 16:19
  • @JoeTaxpayer. How to find difference between gift for advice and payieble advice. – aleks.n.fedorov Jun 14 '14 at 17:03
  • Can you elaborate on the advice you are being given? – RohitJ Jun 14 '14 at 17:05
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    If money is given for having received something, or for expecting to receive something, then it isn't a gift. You can't give a gift for advice. You can't give a gift for anything. – gnasher729 Jun 14 '14 at 23:12

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