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Jim Rockford
LSU Fan
Member since May 2011
57235 posts
 Online 

Compensation hypothetical
Say I have family members working for me. Instead of taxable bonuses, I give them periodic tax free "gifts" from my personal funds.. How likely would the IRS be to pick up on this if everybody kept their mouth shut, and what would be the consequences if they found out?. Asking for a friend.


GenesChin
Army Fan
The Promise Land
Member since Feb 2012
28855 posts

re: Compensation hypothetical
quote:

give them periodic tax free "gifts" from my personal funds.. How likely would the IRS be to pick up on this if everybody kept their mouth shut


If you paid it As wages wouldn't you be able to write if off your own taxes?

Either it gets taxed on its way into your personal account or on its way into theirs.


Jim Rockford
LSU Fan
Member since May 2011
57235 posts
 Online 

re: Compensation hypothetical
I would be paying FICA and they would pay FICA and income tax.. I think I could give them a smaller gift and we would both come out ahead.. i would have to figure out the breakeven point.


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Cin8
Maryland Fan
Nation's Capital
Member since Aug 2017
10 posts

re: Compensation hypothetical
My understanding is that you can give up to $14k in "tax free" gifts to an individual in a calendar year.

LINK


Weagle25
Auburn Fan
THE Football State.
Member since Oct 2011
30631 posts

re: Compensation hypothetical
quote:

My understanding is that you can give up to $14k in "tax free" gifts to an individual in a calendar year.

It is not a gift though if they do work in return for the cash
This post was edited on 10/5 at 6:33 am


Jag_Warrior
Virginia Fan
Virginia
Member since May 2015
654 posts

re: Compensation hypothetical
quote:

It is not a gift though if they do work in return for the cash


He's asking the question with a wink and a nod.


GenesChin
Army Fan
The Promise Land
Member since Feb 2012
28855 posts

re: Compensation hypothetical
quote:

Say I have family members working for me. Instead of taxable bonuses, I give them periodic tax free "gifts" from my personal funds.. How likely would the IRS be to pick up on this if everybody kept their mouth shut, and what would be the consequences if they found out?. Asking for a friend.



Wikipedia has the current court cases regarding this says determinations are made for on a case by case basis with these qualifications for "gifts"

Gifts = Gifts result from "detached and disinterested generosity."
Payments = contract payments "involved and intensely interested"


I imagine if you pay bonuses to other employees while relatives are paid under the table, you have a problem.

quote:

I would be paying FICA and they would pay FICA and income tax.. I think I could give them a smaller gift and we would both come out ahead.. i would have to figure out the breakeven point.


Not as far apart as you'd think

A) You don't pay FICA but have higher federal/state tax bracket than relatives offsetting some gains
B) You pay FICA for yourself anyways + likel higher tax bracket
This post was edited on 10/5 at 1:36 pm


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Weagle25
Auburn Fan
THE Football State.
Member since Oct 2011
30631 posts

re: Compensation hypothetical
quote:

He's asking the question with a wink and a nod.

Obviously. But posting that rule makes it sound like it's legal which it's not. I clarified that it wasn't.


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