heres a tax question need help with?

Question

father-in-law want to give us ten thousand out of his retirement to help us with starting a business and i'd like to know if there a way so we or he doesn't have to pay taxs on it ?

Answer 1

You have no tax consequences. In terms of gift tax, your father-in-law has no tax consequences either, as $10,000 is below the annual exemption. Getting it from the retirement fund may be problematic. Is he under 59 1/2? If so he will almost certainly suffer a 10% penalty in addition to the tax. He will suffer withholding at 20% so the minimum he would have to withdraw to give you $10,000 free and clear is about $14,285. That assumes no state tax withholding. Of course, if his tax bracket is less than 20% he will get some of the tax (but not the penalty) back when he files.

If he is over 59 1/2 he can withdraw penalty-free but may still have tax to pay.

Taking money from a retirement fund can be problematic, unfortunately. The simplest way I can think of getting the money out tax-free is if he has a Roth IRA and is eligible to take distributions.

Answer 2

That's a gift. Gift Tax is assessed on the giver, not the recipient. However, there is a $12,000 annual exclusion amount, per recipient. Since he's giving you only $10,000, there is no tax due from anyone.

If he's taking it out of his retirement fund, he'll have to pay income tax on the full amount unless it's coming from a Roth IRA. There may be additional penalties if he's under 59 1/2 when he takes the distribution.

Answer 3

Neither of you will have to pay taxes on the gift, but he doesn't get to deduct it from his pension - he will have to pay taxes on his full income, and will be giving you money he has paid taxes on.

Answer 4

Treat it as an untaxable gift. Do not report it. Gifts are not taxable as they are not considered income.