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I am from Texas.

My daughter wants to give me about $13,000. What is the legal way of getting that money and do I need to report it on my income tax?

My state does not have state income tax, only federal. I do not have a job in the current year, I have been unemployed.

  • 6
    As a protip: make sure she doesn't travel with this money in cash or you might get hit with Civil Asset Forfeiture. – Wayne Werner Oct 27 '14 at 19:09
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    Another tip is to deposit all the money at once; if you do it in increments below 10k then that might be a red flag and the IRS can seize your account. Source – mikeytown2 Oct 28 '14 at 19:19
28

Your daughter can give you (and also as many other persons as she likes, for that matter) $14K or less each year as a gift without needing to file a Federal gift tax return.

She does not have to report the money anywhere on her Federal income tax return or anywhere else.

In particular, she does not get to deduct that money in arriving at what is called the Adjusted Gross Income or the Taxable Income on her income tax return. In other words, that $14K is coming out of money which she has in her bank accounts, and on which she has already paid income tax. All she has to do is write you a check or hand over cash or buy you a car or whatever. (But be aware that the $14K exemption applies to the totality of all gifts given to you by your daughter that year, including birthday, anniversary, Christmas presents etc., not just cash or check).

You, as the recipient, do not need to declare the $14K that you will receive from her as income and pay income tax on it to the Federal Government. You don't owe gift tax either (even if the gift exceeds $14K in any year): gift tax is assessed on the donor, not the recipient (except in very unusual circumstances).

Since Texas has no income tax, there is no State income tax issue for you either. Some of this may be inapplicable if you and/or your daughter are not US citizens or US tax residents or if State gift tax rules have different exemptions in the State in which your daughter resides.

16

While there are no direct tax issues when a US citizen gifts another US citizen under the 14,000 threshold in a year, but there may be some other issues to be considered.

You do not have a job this year. Are there any benefit programs that you participate in that would be impacted by accepting a gift of this size? Is gifting cash to you the best way to preserve those benefits? Does the child gifting money impact their ability to qualify for some programs?

They may also be able to claim you as a dependent by documenting the support they give you. You may need to talk to a tax adviser or an elder care adviser, assuming that those issues apply to your situation.

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    +1 for bringing up issues beyond gift tax and income tax that also need to be considered. – Dilip Sarwate Oct 27 '14 at 15:16
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    This is a good point. Many such programs ask for 1040 AGI, which will not be affected by the gift. Some such programs as for independent sources of support, which of course would be an issue. – NL7 Oct 27 '14 at 15:18
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You don't need to report that gift and neither does she, since it is below the gift exclusion amount of $14,000 per year. There's no need for her to pay gift tax on this gift and you will not owe income tax.

She may wish to file a protective gift tax return if she has significant assets and intends to make these gifts to multiple people annually. Filing the return starts the statute of limitations clock so the IRS cannot challenge the gift down the road. If she does not have a significant estate, then filing the return may not be worth the effort and is not required.

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    What is a protective gift tax return? – Dilip Sarwate Oct 27 '14 at 15:29
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    A gift tax return that is not required to be filed, but is filed to inform the IRS of a transaction or event. By informing the IRS of a gift, the statute of limitations will generally start and the gift is "protected" from later challenge. This is very common in the gift tax world, where filing 20 years of gift tax returns before dying means that roughly 17 or 18 years worth of gifts will be outside the 3-year statute and the IRS will not be able to challenge their validity. It probably doesn't help much unless you have significant gifts and a substantial anticipated estate. – NL7 Oct 27 '14 at 15:33
  • Would the statute of limitations not start when the gift is made either way? For example (assuming a statute of limitations of 3 years) would a gift 4 years ago not be protected either way? – Richard Tingle Oct 28 '14 at 13:16
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    No, you need to disclose it. This is tax law, not criminal, so the clock starts with the date the return is filed or the date it was due to be filed (whichever is later). Criminal law SOL generally starts from the date of the alleged crime, but that's not the standard for taxes. Per the Form 709 Instructions: "To begin the running of the statute of limitations for a gift, the gift must be adequately disclosed on Form 709 (or an attached statement) filed for the year of the gift." – NL7 Oct 28 '14 at 15:42
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    tl;dr: the 3-year SOL clock starts once you tell the IRS. – NL7 Oct 28 '14 at 15:44

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