Pretax value of aftertax cash gift

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Schooly D
Posts: 254
Joined: Mon Jul 23, 2007 2:00 pm
Location: North Carolina

Pretax value of aftertax cash gift

Post by Schooly D » Wed May 16, 2018 5:45 pm

My wife and I are drafting a post-nup and the lawyer/mediator with whom we are working wants us to determine our respective annual contribution to our joint finances. My wife's only source of income is her salary, so that's easy. I, however, receive several thousand dollars annually from relatives as a cash gift. For the purposes of calculating the percentage that each of us is contributing to the martial finances, should I try to determine the pretax value of the aftertax cash gift? If so, how do I calculate it? One option is to ask how much pretax salary would need to be added to our gross household income in order to end up with X thousand dollars more in the bank. Because we have an effective tax rate of around 25%, this method yields a relatively high pretax value for the cash gift. Alternatively, I could treat the cash gift as if it were my only income, and I were filing singly, which would put me in the 12% bracket, and so the pretax value of the cash gift would be much less.

Yet another approach would be to forget about calculating the pretax value and instead simply calculate our respective contributions based on our respective aftertax income.

Any thoughts?

Thanks,

Schooly D
Cheers, | | David

Silk McCue
Posts: 851
Joined: Thu Feb 25, 2016 7:11 pm

Re: Pretax value of aftertax cash gift

Post by Silk McCue » Wed May 16, 2018 6:12 pm

If it matters, do it right. If it doesn’t matter then there is no reason to care.

The gifted dollars are clearly more valuable and should be tax adjusted if it matters. At rates, in my opinion, should be based off of MFJ if that is how you filed.

Cheers

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