Gifting Question ????? Respons would be greatly appreciated !

[JGB3]

My friend loaned his parents 28,000 Dollars and they are ready to pay him back . He has two children and is trying to figure out how to appropriate the money correctly so he does not get penalized come tax time . Neither he nor myself understand the gifting process. He's also wondering if there are any other options available that might better suit him instead of the gifting method. Any suggestions or explanation of the gift thing would be greatly appreciated .

[Goods]

I could use more details but here goes.

Generally, personal loans are just that, personal. If I loaned you $100 and you paid me back $100 next month, I'm not making any income from it and it's considered a debt for you until you pay me back, not a gift.

Unless he charged interest to his parents, there's no tax to be paid in it. Legally, any profit from interest income goes on his 2007 1040a. (That's if he had a written contract through a bank or lawyer. Or he's just that freakin' straight laced)

Gift tax comes in when he flat out gives them the money - Merry Christmas. Depending on what it's used for, how much (and who knows about it, for that matter) can include or exclude it from being considered taxable. Also, if it's cash, property, stock, an inheritence, etc etc. Complicated stuff. But from what it sounds like, parents give him the money back and no harm, no foul.

If he wants to give the money to his kids... that's a whole different issue.

[JGB3]

Originally Posted by Goods

I could use more details but here goes.

Generally, personal loans are just that, personal. If I loaned you $100 and you paid me back $100 next month, I'm not making any income from it and it's considered a debt for you until you pay me back, not a gift.

Unless he charged interest to his parents, there's no tax to be paid in it. Legally, any profit from interest income goes on his 2007 1040a. (That's if he had a written contract through a bank or lawyer. Or he's just that freakin' straight laced)

Gift tax comes in when he flat out gives them the money - Merry Christmas. Depending on what it's used for, how much (and who knows about it, for that matter) can include or exclude it from being considered taxable. Also, if it's cash, property, stock, an inheritence, etc etc. Complicated stuff. But from what it sounds like, parents give him the money back and no harm, no foul.

If he wants to give the money to his kids... that's a whole different issue.

His father cashed in a stock to get the money for him . I told him I thought that he should break the amount down if he was going to deposit it into his bank account to avoid questions about such a large deposit . Any opinion would be appreciated . Thank you for the response GOODS .

[Goods]

If his father cashed a stock, the father would have to pay any capital gains (if any) on that sale just like if he was keeping the cash himself. It's only when he gifts the stock to him before it's sold is there tax issues.

What it amounts to, if I understand correctly, is selling your car to pay off your credit cards. Your friend has no liability here.

I wouldn't worry about depositing the amount. It's legit.

[JGB3]

Originally Posted by Goods

If his father cashed a stock, the father would have to pay any capital gains (if any) on that sale just like if he was keeping the cash himself. It's only when he gifts the stock to him before it's sold is there tax issues.

What it amounts to, if I understand correctly, is selling your car to pay off your credit cards. Your friend has no liability here.

I wouldn't worry about depositing the amount. It's legit.

Thanks for the info goods . I will pass it along to him .