Contact UsMy question lies around the fact that do I need to pay taxes on the money given as gift if the amount if over the exclusion limit?
I am in a situation related to gift taxes and need some advice. My friend borrowed some money from me which he is unable to repay. I am planning on writing it off as a gift and need some advice on that. Unfortunately this amount is over the gift exclusion limit. My question lies around the fact that do I need to pay taxes on the money given as gift if the amount if over the exclusion limit? Is there a way I could avoid paying this money by allocating the money gifted towards the lifetime gifting clause? Should I hire a CPA or a tax lawyer to protect my self to make sure everything is filed appropriately? I need to file my taxes for this year and I am not a US citizen yet. I have been honestly paying taxes to the last cent since the 6 yrs I have been here. Would the IRS question me or audit me in a situation like this?
I will highly appreciate your response in this matter. Thanks a lot.
I will highly appreciate your response in this matter. Thanks a lot.
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Tax Professional Answers
John Stancil
You will need to file a gift tax return, Form 709. However, you will not owe any tax. The amount in excess of the annual exclusion amount ($14,000) will reduce your lifetime exclusion (currently $5,430,000). The lifetime exclusion applies to gifts and estates. I don't anticipate that the IRS would question the gift or conduct an audit.
One way to avoid having to file a return is to forgive $14,000 a year until it is totally forgiven. You also need to be aware of the imputed interest laws, which may impute interest on the loan, depending on the size of the loan, Since no interest was charged or paid, the IRS would treat it as if your friend paid you the interest and he gifted it back to you. This creates interest income for you, which is taxable on your income tax return.
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479 weeks ago
One way to avoid having to file a return is to forgive $14,000 a year until it is totally forgiven. You also need to be aware of the imputed interest laws, which may impute interest on the loan, depending on the size of the loan, Since no interest was charged or paid, the IRS would treat it as if your friend paid you the interest and he gifted it back to you. This creates interest income for you, which is taxable on your income tax return.
Question Owner
Thanks a lot for your detailed response. Do you recommend hiring a CPA or a tax lawyer to do my taxes?
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479 weeks ago