If you hand a friend a crisp $20 bill, you don’t need to inform the IRS about it, but more substantial cash gifts have to be reported if you don’t want to be audited. So, how much money can you send to a relative overseas or even give to your children before the IRS is going to want you to go into precise details? According to masters in accounting degree holders, it all depends on the nature of your relationship as well as current tax rules. While there’s nothing unusual about a father transferring money from his personal bank account to his son’s, things are different when it is officially called a gift. Here’s what every U.S. taxpayer should know about sending and receiving cash gifts.
All Money Transfers Matter
In total, individuals are allowed to give $14,000 in cash gifts to others free and clear before they have to worry about informing their accountant. You can hand off a check for $14,000 to your mother-in-law or send multiple cash gifts to relatives that total up to $14,000. Once you have given just a single $1 more than the maximum that the IRS allows, you have to declare so on your tax return. This is actually a federal tax rule that a lot of taxpayers get tripped up by because they don’t know that cash gifts are actually taxable. This means that parents supporting their kids through school, or even friends who are helping other friends through hard times might need to look at the total amounts they have gifted others through the calendar year.
How Much Will You Get Taxed on Sizable Cash Gifts?
The amount of tax you might pay on cash gifts to others really depends on a lot of factors, which are best known by the IRS. For example, if you made $50,000 last year and gave a total of $15,000 cash gifts, your tax liability would be less than someone who made $150,000 in the same period. Before you complete a cash gift money transfer, consult with an expert who holds an online masters in accounting so that you don’t get penalized by the IRS for being too generous.
Is it Illegal to Utilize a Tax Loophole?
People who don’t want to report the sizable cash gifts that they regularly make to loved ones might have little to worry about by making direct cash transactions, but that would actually be highly illegal. The fact of the matter is that the Internal Revenue Service doesn’t take tax evasion lightly. If you don’t want to pay taxes on cash gifts of more than $14,000 then you should talk to the recipient about whether or not they would be willing to pay the fees.
Married couples can exceed the cap on tax free cash gifts if they combine their contributions, but that’s pretty much the only exception to the rule. Otherwise, there are going to be some taxes paid but it might only be a few hundred dollars. Send your loved ones a check, a money order or initiate an international wire, just be ready to pay the gift tax amount.