How to Manage Taxes on Donations Received - Reader Question
November 30, 2007
A reader sent in the following question about managing taxes on personal donations. I’ve never been on the receiving end of donations so I don’t know the tax implications or the best strategy to reduce taxes on the money.
It sounds like an awfully sad situation; I can definitely see why they would want to reduce the tax bite. The more they can keep, the more they have to spend on the well-being of their kid. Can anyone offer some tax tips for this unfortunate situation?
Related ArticlesA friend of mine has a dying child. They have been receiving donations, funds raised for them. What will be the best way to set up an account or fund that will be tax-free? Is this money even taxable?
My understanding is that any of these donations would fall under gift tax rules.
As long as each donor gives less than $12,000 to this family (no matter how large the overall total is), both donors and recipients should be in the clear. (This does NOT mean averaging out donations; each person has to donate less than $12K.) Alternatively, the donors could send money directly to the hospital or treatment center on the child’s behalf; that also avoids gift tax implications.
http://www.irs.gov/newsroom/article/0,,id=107815,00.html
each person can donate $12k (not less than $12k) per person, under the gift tax exclusion. This could mean that one person could give the child $12k and each parent $12k each. however, the person receiving the gift doesn’t have to pay the gift tax anyways.
you can also receive more than $12k up to the lifetime gift-tax exemption limit of $1million dollars per person. But even then, it is the gift giver, not the gift receiver that has to pay the gift tax if it exceeds the limits.
Thanks for the tips guys. $12K per person sounds like a lot but with the cost of health care these days I bet a major extended hospital stay could go through that money pretty quick.