support vs. gift for college student

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jj45
Posts: 24
Joined: Tue Jan 02, 2018 4:02 pm

support vs. gift for college student

Post by jj45 » Sat Aug 11, 2018 4:28 pm

I am looking for guidance on the distinction between giving my kid a gift and providing support. I'm trying to determine how much I have already given in gifts and how much I can put in their 529 and still stay under the $15,000 gift exclusion. The kid is over 18, in college, and a dependent for tax purposes. I pay for more than half their support, hence the dependent status, but is that support also a gift? Or is support not a gift? When they are at home and eat the food in the fridge is that a gift? If I pay for their travel to college, is that a gift? What about if I pay for a vacation? If I buy them clothes is that a gift? Or are gifts just cash I give them for birthdays, etc?

Spirit Rider
Posts: 8905
Joined: Fri Mar 02, 2007 2:39 pm

Re: support vs. gift for college student

Post by Spirit Rider » Sat Aug 11, 2018 5:42 pm

Support of dependent is not a gift whether the dependent is a minor or not. However, what is support and what is a gift is not always clear cut for college students. I always start with a process of elimination. Establish items that are clearly support or clearly a gift.

Support:
If you think about what are your support requirements for your minor children. They are probably justified as support for a dependent college student. First and foremost you have a responsibility for their well being.
  • This would start with room and board.
    • You have a responsibility to provide them with shelter to protect them from the elements. This would mean that housing including utilities are support. As well as furnishings.
    • You also have a responsibility that they receive adequate life sustaining nutrition. This would mean groceries and some amount of meals outside the home.
  • You have a responsibility to clothe them.
  • Some nominal amount of allowance.
Gifts:
  • Contributions to UTMA, 529 and IRA accounts.
  • Large cash amounts that are not for support needs.
  • A vehicle.
  • Expensive gifts that are not necessary for their well being.
Some gray areas:
  • Travel: I would say that travel to and from school would be support. Vehicle expenses (insurance, gas, maintenance, parking, tolls, etc...) maybe not. Vacations with the family yes, Vacations with friends not.
  • Computers, laptops, tablets, cell phones and internet: This is a tough one. I have decided that if qualified for 529 plan withdrawal, it is not a gift. After all, a teenager would consider failing to provide a cell phone as child neglect and a crime against humanity.
  • Entertainment: Another tough one. Does this fall under necessary for a dependents well being? Cable or other video services, movies, etc... maybe. Clubbing, partying, etc... definitely not.
The IRS has shown no inclination to go after families supporting their college students (within reason). Also, they clearly have to know that any cash contribution of exactly the annual exclusion amount leaves some minimal amount of gifts unreported. I'm not supporting tax evasion, but clearly the IRS considers that there is a deminis amount of family gifts that do not need to be reported. Has anyone ever had or heard of the IRS challenging a max five-year 529 superfunding. After all, there has to be some gifts in those five years.

Note: I am just giving my opinion on the college support/gift issue. Just because I think you could provide all this support without gift tax filing, does not mean I think you should. I am a firm believer that college students should work and at least pay their non-room and board living expenses.

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: support vs. gift for college student

Post by stan1 » Sat Aug 11, 2018 5:48 pm

You are over complicating this. If you can pay for your child's education and she is appreciative just do so.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: support vs. gift for college student

Post by mega317 » Sat Aug 11, 2018 9:29 pm

Spirit Rider wrote:
Sat Aug 11, 2018 5:42 pm
After all, a teenager would consider failing to provide a cell phone as child neglect and a crime against humanity.
Good post but this is too funny. I don't think the IRS gives a * what teenagers think.

Spirit Rider
Posts: 8905
Joined: Fri Mar 02, 2007 2:39 pm

Re: support vs. gift for college student

Post by Spirit Rider » Sun Aug 12, 2018 9:37 am

mega317 wrote:
Sat Aug 11, 2018 9:29 pm
Spirit Rider wrote:
Sat Aug 11, 2018 5:42 pm
After all, a teenager would consider failing to provide a cell phone as child neglect and a crime against humanity.
Good post but this is too funny. I don't think the IRS gives a * what teenagers think.
True, but what is considered parental support has clearly evolved over the last 50 years. Technology is a virtual requirement in most high schools. Very often that is the only way to get homework assignments, extra materials, etc... Even though the IRS is relatively inept at meeting its own IT needs. They are clearly aware of this evolution of society.

My point was that health, education and welfare of a child is a parental support obligation. Therefore, my position is that the technology necessary/beneficial to the proper education of your children. Are parental support and not gifts.

jj45
Posts: 24
Joined: Tue Jan 02, 2018 4:02 pm

Re: support vs. gift for college student

Post by jj45 » Sun Aug 12, 2018 12:02 pm

stan1 wrote:
Sat Aug 11, 2018 5:48 pm
You are over complicating this. If you can pay for your child's education and she is appreciative just do so.
I live in a state with a state income tax deduction for 529 contributions with no minimum time before I withdraw for qualified expenses. So rather than paying the qualified expenses directly, I get a state tax deduction if I deposit the funds in the 529 and then immediately withdraw them to pay the expenses. I am trying to figure out how much I can deposit without hitting the $15K limit. Once I know that, I can decide whether I want to go over that and use the 5 year rule.

HereToLearn
Posts: 200
Joined: Sat Mar 17, 2018 5:53 pm

Re: support vs. gift for college student

Post by HereToLearn » Sun Aug 12, 2018 12:15 pm

jj45 wrote:
Sun Aug 12, 2018 12:02 pm
stan1 wrote:
Sat Aug 11, 2018 5:48 pm
You are over complicating this. If you can pay for your child's education and she is appreciative just do so.
I live in a state with a state income tax deduction for 529 contributions with no minimum time before I withdraw for qualified expenses. So rather than paying the qualified expenses directly, I get a state tax deduction if I deposit the funds in the 529 and then immediately withdraw them to pay the expenses. I am trying to figure out how much I can deposit without hitting the $15K limit. Once I know that, I can decide whether I want to go over that and use the 5 year rule.
Are you married? If so, you can deposit $30K/year.

Does the state allow full deduction against state income? My state allows $10K/year for married, and $5K/year for single.

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