Author Topic: Joint account, gifts, and taxes  (Read 4671 times)

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 3408
  • Location: Orange County, CA
Joint account, gifts, and taxes
« on: November 18, 2014, 09:27:18 PM »
Hey guys,

Was wondering if any of you know what the tax implications are, if any, for if my wife and her brother each accepted a gift of $14k from their parents and both deposited their gifts into a joint account (it has her name and her brother's name on it. My name is not on the account)

Does that have any tax implications for us as a married couple?


« Last Edit: November 18, 2014, 09:37:56 PM by jplee3 »

MDM

  • Senior Mustachian
  • ********
  • Posts: 10369
Re: Joint account, gifts, and taxes
« Reply #1 on: November 18, 2014, 09:40:07 PM »
Hey guys,

Was wondering if any of you know what the tax implications are, if any, for if my wife and her brother each accepted a gift of $14k from their parents and both deposited their gifts into a joint account (it has her name and her brother's name on it. My name is not on the account)

Does that have any tax implications for us as a married couple?

No, because it is the parents who are responsible for paying the tax (if any).  See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes.

Enjoy the $14K!

johnny847

  • Magnum Stache
  • ******
  • Posts: 3192
    • My Blog
Re: Joint account, gifts, and taxes
« Reply #2 on: November 19, 2014, 09:47:55 AM »
Hey guys,

Was wondering if any of you know what the tax implications are, if any, for if my wife and her brother each accepted a gift of $14k from their parents and both deposited their gifts into a joint account (it has her name and her brother's name on it. My name is not on the account)

Does that have any tax implications for us as a married couple?

No, because it is the parents who are responsible for paying the tax (if any).  See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes.

Enjoy the $14K!

Also, in that situation your parents in law wouldn't owe any tax either. For a married couple, the gift tax exclusion is $28k, per donor (where a married couple is one donor) and donee pair.

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1448
Re: Joint account, gifts, and taxes
« Reply #3 on: November 19, 2014, 09:53:11 AM »
Not from the gift money, but each owner of an account will owe taxes on any income or capital appreciation generated by that account. Why is it a joint account?

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 3408
  • Location: Orange County, CA
Re: Joint account, gifts, and taxes
« Reply #4 on: November 19, 2014, 10:55:21 AM »
Not from the gift money, but each owner of an account will owe taxes on any income or capital appreciation generated by that account. Why is it a joint account?

My wife wanted to open this with her brother for the purpose of saving for their parents. I'm sure there are much better ways to going about this, especially in the interest of saving money for them... on that subject, her parents are around 69 now and I'm pretty sure don't have 401ks or IRAs (they've been in the restaurant business and are stubborn about retirement but that will only hurt them and us in the long-run). Should we just help them open an IRA and gift them money back to them so they can dump it in the IRA at this point in time?

Not sure what the best move to make on behalf of her parents. I really don't like the idea of her being tied up with her brother in this account. Basically, her parents have her "stash" money for safekeeping for them. But I don't think this is a really great way to keep their money safe while allowing it to grow (especially when we end up owing tax on the accrued interest - even though it's small, it's the principle)
« Last Edit: November 19, 2014, 11:12:27 AM by jplee3 »

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 3408
  • Location: Orange County, CA
Re: Joint account, gifts, and taxes
« Reply #5 on: November 19, 2014, 11:06:42 AM »
Hey guys,

Was wondering if any of you know what the tax implications are, if any, for if my wife and her brother each accepted a gift of $14k from their parents and both deposited their gifts into a joint account (it has her name and her brother's name on it. My name is not on the account)

Does that have any tax implications for us as a married couple?



No, because it is the parents who are responsible for paying the tax (if any).  See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes.

Enjoy the $14K!

Also, in that situation your parents in law wouldn't owe any tax either. For a married couple, the gift tax exclusion is $28k, per donor (where a married couple is one donor) and donee pair.


Thanks, so when we file taxes, we just wouldn't mention this at all? Or what does that look like? I'm not as clear on that.

johnny847

  • Magnum Stache
  • ******
  • Posts: 3192
    • My Blog
Re: Joint account, gifts, and taxes
« Reply #6 on: November 19, 2014, 11:23:01 AM »
Thanks, so when we file taxes, we just wouldn't mention this at all? Or what does that look like? I'm not as clear on that.

Exactly. The donor is the one responsible for reporting any possible taxes on gifts. Never the donee. (Well, not quite. There is apparently a provision that allows the donee to pay the tax if the donor and donee agree to it under certain circumstances. But it's irrelevant for your discussion, since the amount that we are talking about here is under the gift tax exclusion regardless).

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1448
Re: Joint account, gifts, and taxes
« Reply #7 on: November 19, 2014, 12:27:10 PM »
Since the purpose of this joint account is to stash money for the parents, structuring this as a gift to adult children is wrong, in my opinion. One of the joint holders is considered the primary owner who will receive the IRS Form 1099 each year, which must be paid on that person's return. Joint ownership makes inheritance murky.

I believe the better way to handle this is to create a revocable trust on behalf of the parents, with one or both adult children having trustee power to manage the assets in the trust. While I recommend some legal advice to get the wording correct for your state, this kind of trust is not expensive to set up & is easy to manage; I've done a number of these for growing educational funds for minor relatives (I'm not a lawyer). A trust has its own tax id number & must file a Form 1041 each year, but its income is taxed separately & independently from the grantor (parents) or the trustee. The assets in the trust are titled with the name of the trust & the trustee. A trust is not tax free like an IRA but has no funding limits & usually results in lower taxes than your joint account.

Since you already have the money, you can establish & manage the trust without the parents' approval. The trust can be as flexible or specific as you want for disbursements on behalf of the parents. It also can & should specify how the trust should be distributed when both parents die, & this is done outside of probate.


MDM

  • Senior Mustachian
  • ********
  • Posts: 10369
Re: Joint account, gifts, and taxes
« Reply #8 on: November 19, 2014, 02:34:50 PM »
So the plot thickens - it's not a simple gift tax issue:
My wife wanted to open this with her brother for the purpose of saving for their parents. I'm sure there are much better ways to going about this....
I agree with you - this seems wrong.  Not illegal, just not good financially.

Thanks, so when we file taxes, we just wouldn't mention this at all? Or what does that look like? I'm not as clear on that.
You don't mention the gift, but whoever has the SS number attached to the account has to report taxes (as GizmoTX said).  Assuming her parents are in a lower tax bracket than either your wife or her brother, this is one reason it doesn't make financial sense: her family is paying more in taxes than if the parents kept the money.  Other comments about inheritance issues just compound the felony.

Would need to know more details about your and your in-laws' situations before making any recommendations, but your idea to "help them open an IRA [and/or 401k] and gift them money back to them so they can dump it in the IRA [and/or 401k] at this point in time" sure seems reasonable.

NoraLenderbee

  • Handlebar Stache
  • *****
  • Posts: 1254
Re: Joint account, gifts, and taxes
« Reply #9 on: November 19, 2014, 03:57:05 PM »

Thanks, so when we file taxes, we just wouldn't mention this at all? Or what does that look like? I'm not as clear on that.

You do not report the $14K on your tax return at all. It is not taxable income.
Any interest that the money earns once it is in the joint account *is* taxable, and should be reported as interest income on your tax return.

I agree with Gizmo's suggestion of a trust.

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 3408
  • Location: Orange County, CA
Re: Joint account, gifts, and taxes
« Reply #10 on: November 19, 2014, 04:06:35 PM »
So the plot thickens - it's not a simple gift tax issue:
My wife wanted to open this with her brother for the purpose of saving for their parents. I'm sure there are much better ways to going about this....
I agree with you - this seems wrong.  Not illegal, just not good financially.

Initially the account was opened for this purpose. Then her parents decided to "gift" money to them which is really more just a safe-house. When I first heard this I thought it sounded funny but was kind of like "whatever" because I didn't know any better but now I realize that it could have more implications than we realize (doh)

Thanks, so when we file taxes, we just wouldn't mention this at all? Or what does that look like? I'm not as clear on that.
You don't mention the gift, but whoever has the SS number attached to the account has to report taxes (as GizmoTX said).  Assuming her parents are in a lower tax bracket than either your wife or her brother, this is one reason it doesn't make financial sense: her family is paying more in taxes than if the parents kept the money.  Other comments about inheritance issues just compound the felony.

Would need to know more details about your and your in-laws' situations before making any recommendations, but your idea to "help them open an IRA [and/or 401k] and gift them money back to them so they can dump it in the IRA [and/or 401k] at this point in time" sure seems reasonable.

I'll have to check with my wife on who's SS number is attached but I *think* it's hers.... we might be able to have it changed to her brother since I'm pretty sure he's in a lower tax bracket than us. With her parents running the business and having some income though, they might be in a higher tax bracket to begin with. We'll have to see. Her parents are really strange in that they don't trust keeping so much money in their bank accounts. I really don't get or understand this, especially when they have a friend who is a CPA!!! Uhh I think they took the term "cash is king" a little bit too seriously... LOL!

I'll ahve to find out more on their situation as it's a bit muddy right now. RE: the trust, my wife says they actually did set a trust up. There are no details on what's in it though hahaha. We're going to have to have a long talk with them soon.

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1448
Re: Joint account, gifts, and taxes
« Reply #11 on: November 20, 2014, 12:44:38 PM »
You need to see the trust document -- there is no such thing as a standard trust.

Sometimes trusts are left completely unfunded until the first spouse dies, assuming there is a will in place that "pours" assets into the trust(s) to create some estate tax deferral while the second spouse still lives. However, this sort of thing is usually only done with large estates.