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Originally Posted by
Candycups
Just wanted to get the whole process straight in my head before I went through with the transfer.
The amount is well under the 5+mil a person can "gift" in their life time, and to the best of my knowledge, that's not an issue that's even remotely on the radar for this guy at this point in time.
There most certainly is to him. The limit is cumulative. If he makes gifts over the annual limit, he has to file a gift tax return. He may not owe taxes until he hits the cumulative limit, but he certainly has to file.
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So right now, all he needs to do is wire the money to my bank account, and that's that, right? No special forms for him to fill out for the IRS at the end of the year?
Nope. See above.
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Any special forms for me?
Not if this is a gift, and it is transferred by wire or by check. If cash, then you will need to fill out a cash activity report if you deposit the money. If you just spend the cash, the seller will have to fill out the report and will probably ask you questions.
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This gift alone is almost double what I make in a year, so it feels like a pretty hefty sum to just sweep under the rug and not clue the IRS into.
That's why the service has rules requiring gift tax returns if the gift is over $14,000 for calendar year 2016.
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From what I understand, there's no need for me to pay taxes on it, but if nothing else, there's a spot to claim it on the tax forms as untaxable income, right?
A gift is not income. There is no place on your tax return to report a gift received. The tax if any is due from the giver.
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Also from what I understand, until the guy maxes out his 5+mil lifetime gifting limit, he doesn't need to worry about paying taxes on the gifts in question. So for right now, literally all that needs to happen is the wiring of the money, and then there's maybe a spot to list the gift on my tax return at the end of the year. Right?
Wrong. There is no spot on your return to list a gift. It is not income. The U.S. does not tax wealth. We tax income. Gifts are not income. On the other hand, if your donor gives more than $14,000 in any calendar year to any one person, he/she must fill out a gift tax return. Once his lifetime cumulative gifts exceed the limit, then he/she owes the gift tax on all subsequent gifts. The tax starts at 50%, by the way. The way the donor figures out if he has met the lifetime limit is to total up all his annual gift tax returns. This all supposes that the amount in question is a gift. If this is a sugar daddy arrangement, the service will take the position that it is payment for personal services rendered. Thus, it is income to you and you will owe income tax and possibly self employment tax if the service thinks you are an independent contractor. He will be required to file a 1099 if the amount exceeds $600 in any quarter. He will also have to pay employment taxes, unemployment taxes, (state and federal) and withhold income taxes (state and federal).
Not that I am saying you should turn down this gift, but you should know if it is a gift or payment for services rendered. Your tax liability will be very different. The worst case scenario is he decides to treat this sum as a deductible business expense (i.e. wages or payment for services rendered) and sends you a 1099 at the end of the year, while you think it is a gift and spend accordingly. Here, a very clear understanding and an opinion letter from one, or better two different accountants or tax lawyers is probably worth it's weight in gold. Or, make the gift $14,000 or less and don't worry about it.
HTH
Z