Happy New Year! A new year means new ventures, businesses or even opportunities to help others! Many people are exploring new opportunities and businesses in 2021. However, many others are not and are still wondering how they’re going to pay their bills. If you have been more fortunate and want to help out friends and relatives who are amongst them, please know that tax laws regulate your generosity. Under the law, this kind of assistance is considered a lifetime gift unless it is for someone whom you are legally obligated to support, such as a child.
As far as the government is concerned, noble motives don’t matter; the same rules that would apply to any other lifetime transfers would apply in such circumstances. The bottom line: gifts of cash or other assets can count against your exclusion allowance from gift or estate tax. While generosity with family members often occurs privately but the law is still clear: if the gift exceeds a certain value and the IRS becomes aware of it, you could be forced to pay the tax as well as interest, and, in some cases, penalties on that gift. HOWEVER, there are some ways you can help relatives and, in some cases, friends without having any gift tax implications. For example, the simplest way is to give the annual exclusion, $15,000 in 2020. You can give this annual exclusion amount to as many individuals as you want. Another way is to pay directly for certain expenses such as medical, dental and tuition expenses without using your annual exclusion. There are other strategies that may be helpful and more suitable for your circumstances.