How exactly does the annual gift up to $13K work?

who's gonna know? take the money and deposit it into your account. You tell IRS that you got $8k as a gift, they will want $4k in taxes.

The purpose of the $13K limit is both the donor and donee pay no Federal Tax on the amount. I suppose I will pay tax if the money is in an account that is interest bearing.

Frankly, I really don't know how the IRS figures these things out. Unless it's some absurd amount of money that is taken out. How is such a small amount traceable?

Quote from daniel32 : who's gonna know? take the money and deposit it into your account. You tell IRS that you got $8k as a gift, they will want $4k in taxes.

Quote from mather : I read about the $13K that each person can gift to another and be taxed free. I understand over that amount, one has to file a tax form. How exactly does the gifting work if the gift is kept under the limit? Say my father wants to gift me, my wife, and our two kids. It's not going to be $13K each but about $2K each, so it's $8K. Does he just give me the money, I can deposit it all together? Does there have to be some sort of trail, like filling a line on the 1040, or depositing into separate accounts?

There's no need for you to do anything any differently than if he gave each of you $5.

Quote from daniel32 : who's gonna know? take the money and deposit it into your account. You tell IRS that you got $8k as a gift, they will want $4k in taxes.

That isn't correct.

OP you don't need to do anything. The gift is well under the limit of $13K.

Quote from PiratesSayARRR : That isn't correct. OP you don't need to do anything. The gift is well under the limit of $13K.

I agree it was to my understanding that 13k gift doesn't need to be reported.

http://www.irs.gov/businesses/sma...39,00.html

As others have already said - it's a gift from one person to another of up to $13k. The rule is cumulative for gifts that occur over the calendar year, but is limited to only the individuals involved.

In other words, Person A (father) can gift $13K to Son and then another $13K to Daughter-in-law and then a 3rd and 4th $13K to Grandkids C and D each over the course of a year without any tax ramifications to any of these people and no reporting requirements. However, if you're anywhere close to these amounts in cash, it's best to keep a record just in case the IRS wants proof that the line wasn't crossed.

In your case, you have nothing to worry about since these gifts don't total $13k and are spread out among 4 people.

I understand now that there is no reporting involved for gifts up to $13K but I am still puzzled about the IRS's stance on the lack of need to report or document the gifting at all. Thanks for the replies.

Quote from mather : I understand now that there is no reporting involved for gifts up to $13K but I am still puzzled about the IRS's stance on the lack of need to report or document the gifting at all. Thanks for the replies.

Treat this as if your dad gave you $5. The IRS doesn't care about a report or document showing a $5 gift from your dad. Treat this the same way. No report needed. No documentation needed.

Quote from mather : I understand now that there is no reporting involved for gifts up to $13K but I am still puzzled about the IRS's stance on the lack of need to report or document the gifting at all. Thanks for the replies.

Ask yourself the question: "How involved should the government be in my personal life and when do they care what I do with my money?" The IRS answered that question with when you give more than $13K to any single person in a year - otherwise, they're fine to stay out of your business.

If you want the government more involved in your life, go for it. Personally, I go with the position of you don't bother me and I won't bother you and we'll be deal with each other as minimally as possible.

Obligatory: Hi FBI/NSA!! I'm just kidding about all that avoe, I love you and promise that I'm being good, but it's fine that you're always checking in on us citizens!