• Keith Fulfer

Hey Dad, can I borrow some money?

Updated: Nov 25, 2020

When I think about movies and money, “It’s a Wonderful Life” comes to mind. This Christmas classic is a heartfelt movie about sacrifice, the gift of friendship, the pitfalls of greed, and the importance of community. Going into the holiday season, our blog will feature some key topics, such as: family, money, and the tax implications that follow. What parent hasn't had to figure out if it is a good thing to give your child some money or not? It starts with wanting a quarter for the little train ride (my latest request) or maybe a bigger sum, like helping with a down payment or a car loan. There are a couple of ways you can give family members money. One is just outright a gift. You have no expectation of getting any of it back. The other is a loan. Perhaps a family member or friend does not have the credit score to get a mortgage or loan from a formal lender. They may also be looking for investors. Whatever the rationale, you need to understand the tax implications. There are limits to the amount of money that you can give (annually) without any tax consequences. For 2020 and 2021 the amount you can give to someone is $15,000. If you are married, then you and your spouse can combine the gifts to one person for $30,000. These gifs can be made to anyone and not just a family member. There is no gift or estate tax implications. If you want to give more, then the gift and estate tax rules kick in. You may need to file a gift tax return. Generally, the tax is not paid when you file the gift tax. But the amounts given count against your lifetime exemption. Once you die, the estate tax takes into consideration all the gifts you have given, reducing your exemption amount. (Currently the exemption amount for 2020 is $11.58 million, so many, if not most people will not have to worry about the gift tax. But if you give more than the $15,000, you should file a gift tax return. Keep in that you must file a return for each gift over the exemption amount.) Many people are happy to lend money to their loved ones, especially to children and grandchildren. It is often an important financial decision, affecting both the giver and the one receiving the gift. There are also emotional factors to consider. But if you want to be generous, be sure you understand the tax implications. Next week, we will do deep dive into the implications of loaning money to family and/or friends. The tax consequences vary greatly depending on the terms of the loan. A small change in the terms can mean a big difference in taxes and penalty.

CATCH BULLCAST THE PODCAST! Our colleagues at Pickler Wealth Advisors are publishing a weekly podcast on financial information, including taxes. Last week's edition was on our topic of loaning money to family members. Catch co-hosts Katie Pickler and Cort Winsett offering a humorous, entertaining, and informative podcast. You can subscribe or catch individual episodes at www.bullcastpodcast.com. Also, look for upcoming PAA Tax blogs and BullCast episodes on important tax and financial information.

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