Gift tax implications of paying parents' estimated taxes via pay1040.com?

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Topic Author
need403bhelp
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Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by need403bhelp » Tue Jun 30, 2020 9:19 pm

Thanks for your past help!

I am planning to pay my parents' quarterly estimated taxes online via pay1040.com.

Is this considered a gift using up part of the annual exclusion for gift tax purposes (if we want to give them more money)?

If so, would I consider half the amount to be a gift to DF and half to DM?

To make a more complicated question, let's say I use a credit card on which I am an authorized user whose primary cardholder is DW to pay the estimated taxes. Would this be a gift from DW now instead of from me?

Thank you!

increment
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by increment » Tue Jun 30, 2020 9:40 pm

need403bhelp wrote:
Tue Jun 30, 2020 9:19 pm
Is this considered a gift
Are they reimbursing you? If not, how could it not be a gift?

Nutmeg
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by Nutmeg » Tue Jun 30, 2020 9:51 pm

The annual gift tax exclusion for 2020 is $15,000 per individual. Do you expect to give your parents more than $30,000 total this year?

If you give your parents more than $30,000 this year ($60,000 if you are married), you will have to report the gifts. However, you won’t need to pay tax until you give them more than about $11 million, an amount that can change each year. Do you anticipate giving your parents anywhere close to $11 million during their lifetimes?

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need403bhelp
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by need403bhelp » Tue Jun 30, 2020 10:11 pm

Nutmeg wrote:
Tue Jun 30, 2020 9:51 pm
The annual gift tax exclusion for 2020 is $15,000 per individual. Do you expect to give your parents more than $30,000 total this year?

If you give your parents more than $30,000 this year ($60,000 if you are married), you will have to report the gifts. However, you won’t need to pay tax until you give them more than about $11 million, an amount that can change each year. Do you anticipate giving your parents anywhere close to $11 million during their lifetimes?
DW and I are planning to jointly give them $60k this year. However, it is more convenient for us to pay part of the amount for them to the IRS via pay1040.com for estimated taxes.

If we weren't paying their estimated taxes, we would avoid any forms by doing:

Check from me to DF: $15k (CHECK A)
Check from DW to DF: $15k (CHECK B)
Check from me to DM: $15k (CHECK C)
Check from DW to DM: $15k (CHECK D)

I am trying to figure out, if I pay DF & DM's joint estimated taxes (say $2k), do I:

(i) subtract $1k each from CHECK A and CHECK C
(ii) subtract $2k from CHECK A only (as DF is primary on tax return)
(iii) or something else?

Thank you!

dukeblue219
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by dukeblue219 » Tue Jun 30, 2020 10:17 pm

You don't need to write four checks. The IRS knows you're married.

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need403bhelp
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by need403bhelp » Tue Jun 30, 2020 10:25 pm

dukeblue219 wrote:
Tue Jun 30, 2020 10:17 pm
You don't need to write four checks. The IRS knows you're married.
Maybe 4 is overkill, but I thought if you write a single check, you still have to file form 709 to split the gift?

The idea would be to avoid filling any extra forms.

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cheese_breath
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by cheese_breath » Tue Jun 30, 2020 10:33 pm

Writing one check or even four doesn't seem terribly inconvenient to me, unless you're afraid they won't cash them. Is that the problem?
The surest way to know the future is when it becomes the past.

kaneohe
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by kaneohe » Tue Jun 30, 2020 10:40 pm

other possible variables.......community property state or not? cc will be paid from jt bank account or not?

whyamihere
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by whyamihere » Tue Jun 30, 2020 10:44 pm

Nutmeg wrote:
Tue Jun 30, 2020 9:51 pm
The annual gift tax exclusion for 2020 is $15,000 per individual. Do you expect to give your parents more than $30,000 total this year?

If you give your parents more than $30,000 this year ($60,000 if you are married), you will have to report the gifts. However, you won’t need to pay tax until you give them more than about $11 million, an amount that can change each year. Do you anticipate giving your parents anywhere close to $11 million during their lifetimes?
Not just to parents, to anyone. The annual exclusion is per person but the credit for $11mil+ doesn't reset if they gave to other people. Not to correct you but to add detail/nuance.
need403bhelp wrote:
Tue Jun 30, 2020 9:19 pm
Thanks for your past help!

I am planning to pay my parents' quarterly estimated taxes online via pay1040.com.

Is this considered a gift using up part of the annual exclusion for gift tax purposes (if we want to give them more money)?

If so, would I consider half the amount to be a gift to DF and half to DM?

To make a more complicated question, let's say I use a credit card on which I am an authorized user whose primary cardholder is DW to pay the estimated taxes. Would this be a gift from DW now instead of from me?

Thank you!
Any chance they have gone back to school for a master's? You could give their school any amount for tuition. Maybe it's more likely they have medical expenses? You can cover their costs by paying their doc or hospital with no limit.

Pretty sure a lawyer would call paying their taxes a gift, and I'm pretty sure the IRS would too. With $60k gifted you're only $30k over (via gift splitting with DW), so it's not a yuge problem to declare it and use some of your exemption.

https://www.irs.gov/businesses/small-bu ... ft-taxes#3

Rare cases exist where you can pay another entity's taxes without it being a gift, e.g. intentionally defective grantor trusts but that's a whole new can of worms and is off topic.
--------------------------------------------------------- | caveat lector

Spirit Rider
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by Spirit Rider » Tue Jun 30, 2020 10:47 pm

Directly paying any obligation of another person other than tuition or healthcare expenses is still considered a gift subject to the annual gift tax exclusion. Paying estimated taxes on a MFJ return is a joint gift.

dukeblue219
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by dukeblue219 » Wed Jul 01, 2020 8:16 am

need403bhelp wrote:
Tue Jun 30, 2020 10:25 pm
dukeblue219 wrote:
Tue Jun 30, 2020 10:17 pm
You don't need to write four checks. The IRS knows you're married.
Maybe 4 is overkill, but I thought if you write a single check, you still have to file form 709 to split the gift?

The idea would be to avoid filling any extra forms.
I am not a lawyer. I also believe (and Google seems to back this up) that a married couple can gift communal property to twice the limit without needing to formally split gifts:

Per
https://www.thetaxadviser.com/issues/20 ... y2010.html

"Community property and property held by spouses as joint tenants or tenants by the entirety are generally considered as owned one-half by each spouse. Thus, spouses do not need to elect to split gifts with regard to these types of property."

Spirit Rider
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by Spirit Rider » Wed Jul 01, 2020 10:16 am

dukeblue219 wrote:
Wed Jul 01, 2020 8:16 am
need403bhelp wrote:
Tue Jun 30, 2020 10:25 pm
dukeblue219 wrote:
Tue Jun 30, 2020 10:17 pm
You don't need to write four checks. The IRS knows you're married.
Maybe 4 is overkill, but I thought if you write a single check, you still have to file form 709 to split the gift? The idea would be to avoid filling any extra forms.
I am not a lawyer. I also believe (and Google seems to back this up) that a married couple can gift communal property to twice the limit without needing to formally split gifts:

https://www.thetaxadviser.com/issues/20 ... y2010.html

"Community property and property held by spouses as joint tenants or tenants by the entirety are generally considered as owned one-half by each spouse. Thus, spouses do not need to elect to split gifts with regard to these types of property."
NOTE: This is not just some non-authoritative content on the Internet. This is from the American Institute of CPAs' "Tax advisor" This is about the most authoritative non-IRS source as you are going to find.

dukeblue219
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by dukeblue219 » Wed Jul 01, 2020 11:02 am

Spirit Rider wrote:
Wed Jul 01, 2020 10:16 am
NOTE: This is not just some non-authoritative content on the Internet. This is from the American Institute of CPAs' "Tax advisor" This is about the most authoritative non-IRS source as you are going to find.
Fair point, and direct source for those wanting it is:
https://www.irs.gov/instructions/i709#i ... 4800601584
"If a gift is of community property, it is considered made one-half by each spouse."

Again, IANAL.

Spirit Rider
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by Spirit Rider » Wed Jul 01, 2020 1:16 pm

The problem is that Form 709 Instructions on who must file are confusing if not down right misleading. Sometimes, the IRS finds the absolute worst language in their publications that imply the opposite of what is required.

For example, if you continued past the sentence you quoted in that bullet point from Form 709 Instructions, it implies that even gifts of community property require both spouses to file a gift tax return to report gift-splitting, However, their example amount is > 2X the annual exclusion. Furthermore, go to the next bullet point where here again they imply all gifts of marital property held as joint tenants or tenants by the entirety, require filing Form 709.

Every professional accounting organization and most CPAs take the position that gifts from community and joint marital property accounts do not require Form 709 gift-split reporting unless the yearly amount exceeds 2X the annual exclusion or one of the spouses has gifted any individual property to the same donee.

To my knowledge, I have never heard of the IRS challenging a failure to file in such a case. Maybe the professional CPAs here can comment, because I know some CPAs recommend an abundance of caution and recommend reporting a gift-split whenever the amount is greater than 1X the annual exclusion regardless of the accounts involved. The CPAs I have had over the years have felt otherwise.

MarkNYC
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by MarkNYC » Wed Jul 01, 2020 9:33 pm

Spirit Rider wrote:
Wed Jul 01, 2020 1:16 pm
The problem is that Form 709 Instructions on who must file are confusing if not down right misleading. Sometimes, the IRS finds the absolute worst language in their publications that imply the opposite of what is required.

For example, if you continued past the sentence you quoted in that bullet point from Form 709 Instructions, it implies that even gifts of community property require both spouses to file a gift tax return to report gift-splitting, However, their example amount is > 2X the annual exclusion. Furthermore, go to the next bullet point where here again they imply all gifts of marital property held as joint tenants or tenants by the entirety, require filing Form 709.

Every professional accounting organization and most CPAs take the position that gifts from community and joint marital property accounts do not require Form 709 gift-split reporting unless the yearly amount exceeds 2X the annual exclusion or one of the spouses has gifted any individual property to the same donee.

To my knowledge, I have never heard of the IRS challenging a failure to file in such a case. Maybe the professional CPAs here can comment, because I know some CPAs recommend an abundance of caution and recommend reporting a gift-split whenever the amount is greater than 1X the annual exclusion regardless of the accounts involved. The CPAs I have had over the years have felt otherwise.
I agree that the 709 instructions are confusing, and some sections need to be read 2 or 3 times to get a correct understanding.

As the instructions indicate, the IRS will consider a gift of community property or joint marital property as being made one-half by each spouse. Only if such a gift exceeds twice the annual exclusion (and is the only gift), must both spouses file a gift tax return to report the gift. But treating a gift of community property or joint marital property as made one-half by each spouse is completely different from gift-splitting.

If both spouses consent to gift-splitting, then every gift for the year by each spouse will be considered as made one-half by the other spouse, and this includes gifts of joint marital property. For the joint marital property, first the full gift gets allocated 50% to each spouse, then each spouse's allocated portion of the full gift is subject to the gift-splitting 50% allocation to the other spouse.

JackoC
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by JackoC » Thu Jul 02, 2020 10:15 am

need403bhelp wrote:
Tue Jun 30, 2020 9:19 pm
I am planning to pay my parents' quarterly estimated taxes online via pay1040.com.

1. Is this considered a gift using up part of the annual exclusion for gift tax purposes (if we want to give them more money)?

2. If so, would I consider half the amount to be a gift to DF and half to DM?

To make a more complicated question, let's say I use a credit card on which I am an authorized user whose primary cardholder is DW to pay the estimated taxes. Would this be a gift from DW now instead of from me?
1. Although there is no black letter rule or case AFAIK of saying that paying other people's taxes is a gift, it seems hard to construe it as not being one, assuming you're not reimbursed. I would note that on other threads some people say stuff is 'obviously' a gift where it's much less obvious IMO (eg. taking grown kids along on a vacation you pay for, paying for their wedding etc). But in this case it does seem pretty obvious: gift.

2. However I think anything beyond point 1. is worrying about it too much. Answer 1 is per the honor system basically. The chance of this ever coming up at all is very low IMO, that an already unlikely income tax audit would go over every check and CC charge and ask if each was for you or somebody else, unless it's a taxpayer flying many other red flags. Then multiply this small chance by smaller chance of hypothetical highly pedantic hassling by IRS about who really gave the gift on a joint CC: not worth worrying about, IMO.

We've often paid portions of grown kids' tax. We count it as gift. If done by CC (2.625% cash back v 1.87% convenience fee), I just record in spreadsheet who made the charge and it's their gift. If anyone could point to a real case where anyone was hassled about this I might give it more thought.

Topic Author
need403bhelp
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Re: Gift tax implications of paying parents' estimated taxes via pay1040.com?

Post by need403bhelp » Thu Jul 02, 2020 11:56 am

JackoC wrote:
Thu Jul 02, 2020 10:15 am
need403bhelp wrote:
Tue Jun 30, 2020 9:19 pm
I am planning to pay my parents' quarterly estimated taxes online via pay1040.com.

1. Is this considered a gift using up part of the annual exclusion for gift tax purposes (if we want to give them more money)?

2. If so, would I consider half the amount to be a gift to DF and half to DM?

To make a more complicated question, let's say I use a credit card on which I am an authorized user whose primary cardholder is DW to pay the estimated taxes. Would this be a gift from DW now instead of from me?
1. Although there is no black letter rule or case AFAIK of saying that paying other people's taxes is a gift, it seems hard to construe it as not being one, assuming you're not reimbursed. I would note that on other threads some people say stuff is 'obviously' a gift where it's much less obvious IMO (eg. taking grown kids along on a vacation you pay for, paying for their wedding etc). But in this case it does seem pretty obvious: gift.

2. However I think anything beyond point 1. is worrying about it too much. Answer 1 is per the honor system basically. The chance of this ever coming up at all is very low IMO, that an already unlikely income tax audit would go over every check and CC charge and ask if each was for you or somebody else, unless it's a taxpayer flying many other red flags. Then multiply this small chance by smaller chance of hypothetical highly pedantic hassling by IRS about who really gave the gift on a joint CC: not worth worrying about, IMO.

We've often paid portions of grown kids' tax. We count it as gift. If done by CC (2.625% cash back v 1.87% convenience fee), I just record in spreadsheet who made the charge and it's their gift. If anyone could point to a real case where anyone was hassled about this I might give it more thought.
Thank you, all, for your responses.

I realize this is probably worrying too much, but at the same time I don't really want to deal with any (even imagined :) ) consequences.

I think what I'll do is make the estimated tax payments (about $3k total) and then just write our four checks (even though apparently not necessary) for $12k each this year. The rest of the funds ($12k) we'll just give in 2021. Hence, there is no way to argue that we are in any way over the gift limits and I don't have to worry about who is giving the gift with respect to estimated taxes and to whom.

Thanks again for your insights and helpful and very detailed information!

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