If you are supporting adult children, or even give them a helping hand now and then, you’re not alone. In today’s tough job market, getting a good career started can take a little longer than planned.
The last thing you need when you’re trying to be helpful, however, is to beworried about paying gift tax.
Fortunately, your chances of actually owing gift tax are very low and you probably don’t even need to file a gift tax return.
To set your mind at ease, first determine if you’ve given any one child more than the limit for a calendar year.
You can give a child up to $14,000 in a year before you have to file a gift tax return (in 2012, this amount was $13,000).
If your child is married, you can also give up to $14,000 each to his or her spouse. If you’re married, you and your spouse can both make gifts, meaning the maximum gift one couple can gift another couple without filing a gift tax is $56,000.
This amount is per calendar year, and does not roll over from year to year. Try not to give all your assistance in one year if you want to avoid filing gift tax returns. This annual exclusion changes from year to year, so make sure you know what the exclusion amount is for a given tax year.
The IRS isn’t interested in the rental value of your child’s old bedroom, or the amount of food that disappears from your refrigerator.
If you are ever audited, however, the IRS may notice large checks written to your adult child, or a transfer of a valuable asset, such as a car.
You can pay as much as you want for tuition, medical expenses, or health insurance premiums on behalf of your children without worrying about gift tax returns. Just make sure you pay the school, hospital, or other organization directly.
Any amount you pay your adult child, either in your business or for personal services, is not a gift. The amount you pay must be reasonable, and the child must have actually done the work. If you pay your child in your business, you can deduct the amount you pay him or her as a business expense. It’s a win-win situation – you avoid the possibility of gift tax and lower your tax bill, while your child feels useful and doesn’t need to feel guilty about accepting help.