re: Compensation hypothetical

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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.

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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.

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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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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