Will investment in business trigger gift tax

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Mopar440
Posts: 1
Joined: Thu Jul 12, 2018 6:28 am

Will investment in business trigger gift tax

Post by Mopar440 » Thu Jul 12, 2018 6:43 am

My son is planning on buying a small manufacturing supply company to the tune of 500k. If I were to front him 50k to help with the down-payment on the Small Business Loan how would I structure it to avoid triggering a gift tax.

ExitStageLeft
Posts: 487
Joined: Sat Jan 20, 2018 4:02 pm

Re: Will investment in business trigger gift tax

Post by ExitStageLeft » Thu Jul 12, 2018 12:37 pm

Welcome to the forum. The first thought that comes to mind is the fact that the annual exclusion is $15,000 for 2018. If you and his mother each gave $15k then only $20k would be subject to the gift tax requirements.

That doesn't mean you pay tax on that $20k, just that you have to keep track of it. You would file a Form 709 and note how much of the gift is above the annual exclusion. That gets counted against a lifetime limit, which is $11,180,000 in 2018. You won't have to pay a tax until you've reached the lifetime limit.

This according to https://www.nerdwallet.com/blog/taxes/gift-tax-rate/. You probably should read up on the IRS web site for confirmation.

WannabeAgAlum
Posts: 69
Joined: Mon Apr 03, 2017 10:55 pm

Re: Will investment in business trigger gift tax

Post by WannabeAgAlum » Thu Jul 12, 2018 12:50 pm

You could make all or part of the $50,000 a loan to avoid a gift tax return. So $15,000 as gift from you (another $15,000 from spouse?) with the balance a loan. Have son execute a promissory note for the loan part. Could be a balloon note at AFR with interest only payments due annually.

In subsequent year(s) if you decide you don't want to collect on the note, you can forgive up to the annual exclusion amount ($15,000). If you do loan, both sides should go into it expecting payments to be made on the loan.

Wannabe

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