If a relative is in a lower income tax bracket than me, are there tax or legal issues of taking cash and putting it in their bank account? Ofcourse, the goal here is to get interest income taxed at a lower tax bracket than what I would be taxed at if I put it on my own savings account.
Thanks.
2007-03-06 05:51:31 · 5 answers · asked by ajangity 1 in Business & Finance ➔ Taxes ➔ United States
Its not so much that it'll be their money, its relatives so I can definately get it all back. But I guess I am answering my own question... as far as IRS is concerned, I gave it away, so I guess the gift tax rules apply here.
2007-03-06 06:06:49 · update #1
the implication is zero to you, but you create one to them. The legal issue is that it is now their money. You also could be creating a gift tax to them depending on how much you let them have. Why not put it in a tax deferred account like an annuity? or muni bonds that will also get you a better rate than a savings account.
ADDED INFO:
its great that you trust them & have a relation with them that allows you to do it (and I wont question it if you wont), but all in all, you would be giving them a burden. Unless you figure out how to pay them back the tax they will pay because of the influx of funds, it just seems like more trouble than its worth. The other option that I am not 100% sure if it would be of benefit to you would be to put it in a trust for your benefit. Look into a trust lawyer for that though.
2007-03-06 05:58:53 · answer #1 · answered by ricks 5 · 1⤊ 0⤋
The gift tax rules apply so if you give more than 12,000 per person per year then you have to file a gift tax Form 709. This strategy is not worth it. And some relatives will not give it back even if you think so now. Money changes things.
2007-03-06 07:25:57 · answer #2 · answered by spicertax 5 · 0⤊ 0⤋
Cody has it nicely coated. it could be an account with the two certainly one of your names on it. That way whilst the guy passes it right away is going to you. If it replaced into placed on your call basically, you have the present tax situation to handle. additionally, as long because it somewhat is joint, the guy possessing the money will pay all taxes.
2016-10-17 10:09:16 · answer #3 · answered by ? 4 · 0⤊ 0⤋
Don't do that. Buy tax free muni bonds.
2007-03-06 05:57:07 · answer #4 · answered by PeaceNow 2 · 0⤊ 0⤋
See the IRS publication 950 for information on who gets taxed in a gift transaction.
http://www.irs.gov/publications/p950/index.html
2007-03-06 06:00:18 · answer #5 · answered by sj 4 · 0⤊ 1⤋