As long as you read the fine print. People buy thing interest free, then don’t pay on time, then owe more than it is worth.
I would love to buy property on a 0% deal!
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Extrapolating from how I saw cash gifts used by families when I was college age. Might not apply here of course.
Up to $15,000 per giver, per current IRS rules, a gift is non-taxable.
Above $15k and the giver owes income tax on it. (Not the giftee.)
You don’t have to include it on your tax return. But document it thoroughly and hang on to that documentation for the required record-keeping time, which I think is 7 years now. In case of audit. Which is hopefully unlikely, but better not to face worst case scenarios.
actual retention of supporting records for Personal income varies from three years (for most tax payers) to indefinite for those who are not so worthy
the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date. (Business are recommended to retain records for the seven years)
Period of Limitations that apply to income tax returns
- Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
- Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
The annual gift tax limit for 2022 is $16,000 but any excess goes towards your lifetime gift tax exemption, which is significantly higher. So for a single gift of say $20,000, you don’t automatically owe taxes if you’re still within the lifetime gift tax exemption limit (which I don’t remember off the top off my head, but is quite a bit higher).
ETA: But yes, the point being that the recipient would not owe the tax - the gifted does.
2022 gift up to $12.06 million over your lifetime without having to pay gift tax…all to one person if so desired
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I also didn’t pay for college or living expenses while I was in undergrad, and I’d still join the “neither; save it” camp. I really wish I’d been more serious about saving and investing money at that time because I’d be much further ahead by now and wouldn’t have been caught quite as off guard when I started taking more expenses on.
I had a horse the first couple of years of college. It was a huge stress. She was unsound and I was busy. I do not recommend taking it on until you’re ok with floating an invalid indefinitely.
I also splurged a little on fun (used) cars. No shade from me for wanting them (or the horse, clearly). But older me wishes younger me had invested the few grand of difference between the reliable car and the fun car.
Also worth noting - I graduated into a recession, which changed my previously cushy financial situation real fast. I don’t know what year you are in school, but strange things are afoot in the global economy, so it wouldn’t hurt to be prepared for a variety of situations.
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I have the payment on autopay to my credit card, which I pay off in full every month. So not only am I not paying interest on the car loan, but I exchange the accumulated credit card points for gift cards with which I buy feed.
Those 0% car loans can be a godsend if, as you said, you make each payment on time.
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This makes no sense to me. The giver has already paid income tax on that money that is sitting in their bank account. That they then transfer that money to the giftee means it’s INCOME to the GIFTEE, not the giver a second time.
Are we sure this is correct?
(I suppose this makes it obvious I’ve never given more than $15K to anybody else in my lifetime…)
I doubt anyone is still being offered 0% interest loans right now?
How would the IRS even know someone gifted someone else money in the first place?
well there are several ways but then there is " The Internal Revenue Service’s whistleblower office which incentivizes people to report tax evasion and other tax law violations. The IRS Whistleblower Program rewards whistleblowers by paying 15 to 30% of government recoveries that result from the whistleblower’s reporting to the IRS Whistleblower Program."
When I was transitioning from grad school to a full time job 20 years ago I got a 0 % for 18 months credit card. I tossed all my moving and setup expenses on it, then paid it off with my new salary before any interest accrued. I’ve also used those cards to transfer debt from other cards that have traditional % like 18%.
Like most financial tips and hacks, this is one that works best if you are already financially solvent. It is designed however to be predatory and encourage people who shouldn’t have debt to get in over their heads and then pay insane fees and interest.
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Breaking a young colt is a great deal of work, and requires a great deal of time. If you want to spend some of the money on fun stuff, take some more lessons, maybe lease a horse. Save the money to buy a horse for the rider and lifestyle that’s right for you at the end of four years, which might be different than what’s true for you now. This is a horse message board, so obviously many of us (including myself) are like, “your current car works fine, and when you get a new one, get a nice new used vehicle that can pull a trailer,” but you’d get different advice on a car board, for sure. If you want to pursue cars rather than horses professionally, of course, that’s different but then you should talk to people who followed that path (but also went to college, since they might be aware of opportunities for college students and car racing we aren’t here).
Agreed! Granted if there were a gun to my head and I HAD to choose, it would be the car, hands down. You can park your car for weeks on end, then go have a great time at a race track. The same can’t be said for a green horse. Not to mention, based on OP saying something about aspiring to work in motorsports, there are certain opportunities and social networks you can only access by investing up front in the hobby.
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I say do neither, and invest the money. keep some out to cover some showing /riding costs but invest the rest and forget about it. Used cars are at a premium right now so , invest your money. Don’t buy another horse, there is always the chance that something could happen where you now have a lawn ornament to pay for for who knows how long. You are young so the smartest thing is not to have any financial burdens until you are out of school and working
No, it’s not correct, and I feel like this is the most misunderstood part of the US tax code despite being pretty straightforward. Here’s a summary of how gift tax works: https://www.nerdwallet.com/article/taxes/gift-tax-rate
TLDR: You have to be giving millions of dollars in gifts before you have to pay taxes on it. A giver (not the receiver!) is supposed to report a gift of over 16k (2022 amount) given in a single year, but no taxes are owed unless you’ve already given and reported close to the lifetime exclusion of $11.7 million away in your life. Receiver pays no taxes on gifts. The reporting of gifts is to keep track of your lifetime exclusion and make sure you aren’t skirting estate taxes or something else.
Signed, your friendly certified volunteer tax preparer. Now go spoil your horses with tax-free monetary gifts from your parents.
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I guess due to inflation the total amount has increased in 2022 for lifetime gifting is now up to $12.06 million (which I know I will not exceed)
Back to OP… take a look at Inflation Bonds issued by the US Treasury ,these bonds are in $100 increments and you can purchase up to $10,000 per year as an individual… current bond rate is 9.62% , rate is adjust quarterly to the then current rate of inflation… I believe you have to hold the bond for at least one year before cashing them in… just check with your advisor
Some articles from popular finance publications are confusing because they tend to speak only to the recipient of the gift. They aren’t clear about who does pay the tax if it is owed.
It may not make sense, but this is what IRS has to say about the gift tax:
On or before April 15 of the calendar year following the year in which a gift is made, the individual making the gift must file a gift tax return (Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return), if any of the following is true:
the individual “making the gift” is the donor of the gift
The total value of gifts the individual gave to at least one person (other than his or her spouse) is more than the annual exclusion amount for the year. The annual exclusion amount for 2021 is $15,000 and $16,000 for 2022.
And so on, in that link.
https://www.hrblock.com/tax-center/income/other-income/do-i-have-to-pay-taxes-on-a-gift/
Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $15,000 per recipient for 2019. The giver may also not owe gift tax due to the basic exclusion amount.
Why the giver is the one on the hook for the tax if it is over the current annual exclusion amount, I do not know.
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Car. There will be a lot of time for a horse later, after you’re done with school and have a job in the field you are studying in.
Sheilah
I did some reading on this, too, and it seems that you don’t actually pay the tax. You instead designate that the gift goes against the lifetime gift limit.
I give 50K to my daughter (which is over the 2-spouses gift limit), I file the form, the money is counted against my LIFETIME limit of 12-ish million. Nobody actually pays any tax.
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That is good to know, thanks.
