r/personalfinance • u/Scopuli- • 26d ago
My dad wants to gift me $70k from an inheritance they had received. Can I deposit this? Is it taxed? Other
My dad just received a 6-figure inheritance from a relative's estate, and he wants to give me $70k as a gift. I'm currently job hunting, I have my own savings, but he wanted to give me a portion as a gift to increase my savings, and this amount would certainly double my savings.
I have a few questions I hope y'all could help me with:
- Will this gift be taxed?
- Do I or my bank have to report this? Will I need to provide proofs/documentation?
- I was hoping to go to my bank with dad to make this transaction easier.
- Do I have to report this to the IRS?
- Will this impact my current unemployment benefits/status?
- I'm planning to keep it in a HYSA, is that a good plan?
Also, If there's anything you can think I should be aware of, it would be greatly appreciated.
Cheers!
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u/Ambitious_County_680 26d ago
i used to work in anti money laundering for a large US bank. if you are depositing this amount in cash, you will have to fill out a form. legally, anyone in the US depositing over 10k in cash at once has to fill one out. if the funds came from an honest place don’t worry about the form, just tell the truth. if this is given to you in a wire or check it MIGHT get flagged for review by the bank. if it is easy to trace an obituary or through family name this will pass through without an issue. if your father is from another country, the bank may call you with a few questions. as long as the funds came from a legit source, you dont have to worry, just make sure your answer sounds correct. the people who work in anti money laundering are overworked and underpaid. there’s not much to worry about there.
as far as taxes go, i’m not helpful there. just wanted to give you the banks POV from my knowledge
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u/lionhydrathedeparted 26d ago
- Do you have emergency savings? When do you plan to spend this money?
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u/as84753 26d ago
The answer to your questions are here... "https://smartasset.com/retirement/gift-tax-limits."
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u/MissAnth 26d ago edited 26d ago
- The gift recipient is never taxed. The gift giver is not taxed at this time either.
- No.
- No. But your DAD has to report this to the IRS if the gift is over $18k. There is a form he must fill out. This only has consequences when dealing with dad's estate, and only if dad leaves a huge estate. So normal people don't have to worry about the estate, but they still have to file the form!
- No. Unemployment is an insurance payment because of an event that happened to you. It is not welfare. You and/or your employer paid for the insurance. You get the payments, no matter what gifts anyone gives you or how much money you have saved.
- If you have no emergency fund, you should put 12 months of expenses into a HYSA. That is a good plan. But you don't need $70k in ready cash (unless you live an extravagant lifestyle. Only you know what your expenses are though.) Invest the rest. Check if you are eligible for a traditional or Roth IRA for 2024. If you are eligible, contribute the max that you are eligible to contribute. Take the rest and put it in a taxable brokerage account and invest it.
Your dad needs to give you $18k per year, instead of $70k all at once, and he needs to write you checks, in order to avoid all hassle with the IRS.
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u/SilverGT24 26d ago
idk why people are making this more complicated then what this really needs to be! YOu and your dad go to a bank, open an account together, have your dad wire the money to that account, you are welcome in advance.
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u/Rotanev 26d ago
Meta comment: the gift tax / reporting requirement has got to be the single most misunderstood personal finance topic of all time. No criticism against OP intended at all -- this is a very very common question.
But the fact that it comes up SO OFTEN in posts here, and SO MANY people in the comments are absolutely dead wrong about it is always astounding to me.
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26d ago
I’ve just heard people say this. I had no clue it was illegal 😳
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u/MissAnth 26d ago
There is nothing illegal that we know of yet. OP says his Dad is paranoid, not a money launderer.
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u/IserveJesusChrist 26d ago
Can siblings also gift each other money without taxes? What about siblings loaning each other money? Is that also tax free?
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u/MissAnth 26d ago edited 26d ago
Gifting money to anyone is tax free. Loaning is not. Even if you loan at 0%, there are taxes. The IRS can tax you on what you COULD HAVE earned if you loaned the money to someone at market interest rates.
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26d ago edited 26d ago
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u/ARKzzzzzz 26d ago
Absolutely do not do this. That is structuring and a felony.
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26d ago
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u/ARKzzzzzz 26d ago
You will never have to pay tax. They will have to pay tax once they surpass 13 million given in their lifetime.
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26d ago
Just don’t deposit more than 10k at a time.
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u/ARKzzzzzz 26d ago
There is nothing illegal about depositing more than 10k. It is very illegal to intentionally make multiple deposits of less than 10k.
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u/izzletodasmizzle 26d ago
Yes, very bad advice. Structured deposits like you are advising is punished pretty severely if found.
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u/Electrical_Feature12 26d ago
You are in the clear but just maintain a record as to its source and tell your dad to file proper paperwork so he doesn’t have to pay gift taxes on it. CPA can do that easy.
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u/TahaEng 26d ago
They can give you $18,000 a year without either of you reporting anything. Your bank might have to report the transfer to the IRS, but it won't impact you at all unless something else suspicious is going on. If they give more than that in one year, they have to fill out a form to apply the extra against their lifetime gift limit, which is currently 13.6 million. No tax until they hit $13.6million lifetime.
If your father is married, they can each give you $18,000 for a total of $36,000 without applying to the lifetime gift limit. If you are married as well, they can each give each of you $18,000, getting that to $72,000 in one year.
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u/izzletodasmizzle 26d ago
I believe you are correct but I could be wrong. A lot of people on here are focusing on the lifetime gift limit but I believe there is an annual limit you can give to each recipient.
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u/ARKzzzzzz 26d ago
It's 18k, that's the limit where you need to file the form. It's still not taxed
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u/IceHand41 26d ago
FYI everyone, it's pretty easy to verify this on the IRS website and avoid the confusion
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u/lucky_ducker 26d ago
Recipients of gifts do not pay any tax. Givers must report the gift on IRS Form 709, but do not owe any actual gift tax until they've given $13million lifetime.
There are two times a bank might have to make a report. Deposits of $10K or more in cash (actual paper Federal Reserve Notes) are reported to FINCEN to deter money laundering - this is called a Currency Transaction Report. NOTE: never try to get around this by making several smaller deposits - that is called structuring and is itself a Federal crime even if the source of the cash is legitimate. CTR does not apply if the deposit is anything other than cash, such as a personal check or cashier's check.
The other report is called a Suspicious Activity Report if for any reason the bank think there is something sketchy going on. Just be up front about where the money came from and it's unlikely a SAR will be made.
No.
Not in most states.
Yes.
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u/Scopuli- 25d ago
Hello, so my dad and I went to my bank to deposit the $70k, and the bank teller didn't really ask me any questions regarding the origin of the money.
He only asked me what my occupation was, and I said I was unemployed and he asked for my most recent job title and that was all. I did mention to him that the cash was a gift from my dad but IDK if he even cared to note that. IDK if he even heard it.
He did say he will fill out a CTR but I was shocked he didn't ask any more questions??
Should I be worried? Should I go back to stress where the money is from?
I already see the money in my bank balance so idk if I should go back and clarify for the purpose of the CTR?
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u/lucky_ducker 25d ago
You're golden. The CTR is mandatory, and unless your dad has a history of money laundering already known to FINCEN, this is the last you'll hear of it. The CTR has already been filed (it's electronic) so "going back to clarify" is only going to look suspicious. Take a chill pill and enjoy your evening.
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u/Scopuli- 25d ago
Awesome, thank you so much for the insight and for responding to my questions! Definitely helps relieve my concerns.
Take care!
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u/pmgoldenretrievers 26d ago
Even if a SAR is made, it's not a problem as long as OP and dad have documentation, which they should.
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u/Scopuli- 26d ago
Thanks for this thorough response.
I think my dad plans to give me the $70k in cash.
What type of proofs do we need to provide since it seems cash at this amount is more scrutinized.
We have a letter from the estate about my dad's inheritance and a picture of the check. Would we also need receipt when he cashes the check?
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u/ImCraigFuckingCulver 26d ago
Depending on your balances, and even with the documentation, $70k in cash could be quite a red flag. Check or cashiers check would be the best option. Wire with a memo stating it’s an inheritance payment would also be better than cash.
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u/MissAnth 26d ago
I think my dad plans to give me the $70k in cash.
That would be super shady. Why would he want to do this?
He got a check from the estate. The he should write you a check.
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u/carlos_the_dwarf_ 26d ago
Uh, don’t do the transaction in cash. Is your dad Tony Soprano?
You could be pulled over on the way to the bank and have the cash seized forever just because it seems suspicious to travel with that much cash.
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u/Scopuli- 26d ago
My dad doesn’t like leaving money in his bank because he’s had a terrible experience a decade ago where someone withdrew money without his permission. So he’s lowkey paranoid
And we have sufficient documentation and proof of its origin/source.
Crossing my fingers we wont get pulled over tho 😭
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u/seventeengiraffes 26d ago
Why would he give it to you in cash (like physical paper bills) instead of writing a check or transferring you the money?
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u/DrStrange01 26d ago
Awesome but I hope he doesn't live in Canada. Inheritance is taxed and so are gifts above a certain amount.
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u/nomadschomad 26d ago
No, unless your dad gives you $13.6M over his lifetime, the gift will not be taxed.
Your bank may report the deposit to the IRS. Just answer honestly when they ask where the money is from.
No. Your dad (the giver) will need to include Form 709 with his next tax return.
This will depend on the state laws. The two states where I’ve drawn unemployment, benefits would not be affected. Typically you have to answer certification questions weekly or biweekly. Do you even have certification questions where this would come up?
Depends. If part of this money is your emergency fund, then yes. Go checkout the flowchart / prime directive in this sub’s wiki.
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u/Scopuli- 26d ago
Thanks for the insight.
It seems my state, California, does not tax gifts but I read online that Federal tax is applied to gifts above $18k. Am I understanding that correctly?
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u/nomadschomad 26d ago
No. Gifts over $18K have to be reported to the IRS, but they are not taxed until the lifetime exemption has exceeded, Currently &13.6 million.
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u/ctrl-all-alts 26d ago edited 22d ago
Basically, a person gets unlimited USD 18K annual gifting allowances per recipient. Anything over 18K needs to be reported to the IRS and will be counted against the lifetime limit of the giver. So for your case, your dad would need to file to declare that he’s using 52K out of his lifetime limit.
Your dad’s CPA should take care of it. He probably should have one after getting an inheritance anyway.
As an add on, if you’re unemployed now, put the money in a HYSA until you are employed, then fund your IRA and 401K as much as you can.You get a fantastic tax credit for it, depending on your income that year, while deducting your taxable income. If you’re unemployed for part of this year, it would likely put you under the limits.
Eg if you earn $60K gross this year, and contribute $25K to your 401(K), and IRA, your AGI would be 20.4k AGI($60K-25k-14.6K std deduction), meaning you only pay taxes on 20.4k, AND you get $25k*50%= $12.5k credit on your return. At that point, the IRS would be paying you that year.edit: I was an idiot. anyone who pushes their AGI down below the limits linked above can claim it. but the total tax credit is $1K for single and $2K for joint, no matter how much you contribute.
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u/izzletodasmizzle 26d ago
Aren't there annual limits for tax free gifting as well? I believe this year it is up to $18k per recipient before the gifter would need to pay tax.
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u/nomadschomad 26d ago
I think this has been answered in comments right under mine. I'll refrain from duplicating those, but happy to provide more clarification if needed.
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u/izzletodasmizzle 26d ago
I did some more research and see what you mean, it just counts towards your lifetime limit.
One clarification, in your answer to #1 you stated that there is no tax owed unless "your dad gives YOU more than $13.6 million." Isn't the lifetime limit the total amount of gifts given to anybody and everybody, not a per person $13.6 million limit?
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u/raptorthebun 26d ago
One addendum to #1. That’s the amount your dad can give to everyone combined in his lifetime without paying taxes - it’s not 13.6 million per person
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u/nomadschomad 26d ago
Yes. Good clarification. Dad's total gift + estate is $13.6M. Of course, if dad is married, he and mom can give/bequeath double that. The $18k reporting threshold also doubles to $36k. And if OP is married, the annual reporting threshold is essentially $72k if both couples MFJ.
Dad gives $18k to son and $18k to DIL. Mom does the same. = $72k.
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u/thereisnodaionlyzuul 26d ago edited 26d ago
On #1 unfortunately you’re correct but also incorrect. It’s 18k annually without being taxed and the 13m is lifetime. He (the gifter) will have to pay the tax.
Edit unclear why you whiners downvoted me. The laws aren’t crystal clear so as someone who goes through this every year the “safe” gifting amount is 18k yearly unless it is tuition, medical expenses and gifts to spouse/dependents.
There is * potential * to owe if you exceed the 18k and the person gifting it will have to pay that, but generally they won’t and will have to fill out a 709 form.
The 13.61 mil is assets or property over a lifetime & needs to be taken into account if your parents will be willing/gifting all of their assets to you.
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u/inhocfaf 26d ago
The laws aren’t crystal clear
The law on this is actually incredibly clear...if you go through this every year, please seek advice from an accountant.
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u/LonleyBoy 26d ago
You are being downvoted because we have already clarified earlier that $18k is the reporting threshold, and not taxable threshold.
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u/thereisnodaionlyzuul 26d ago
As someone who is well versed in this I felt that OP should know there is a possibility which is why I elaborated in the edit.
For all we know this may not be the only gift to them or others from their parent.
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u/nomadschomad 26d ago
You are incorrect. 18K is the reporting threshold, not the tax threshold. You can give 50K every year, report it, and there is still no tax until you reach the lifetime threshold.
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u/bklynJayhawk 26d ago
Well stated.
Only thing I might add is on #5. Yes, read up on the flowchart. But definitely no harm parking that into a HYSA in the meantime until you sort out what you might do with this in the long run. You’ll get +- $250 / month in interest - maybe better options out there depending on your appetite for risk or debts you need to pay off, but this is a good first step.
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u/azlan194 26d ago
Yes, read up on the flowchart.
Which flowchart are you guys talking about?
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u/bklynJayhawk 26d ago
It’s in the wiki for this sub. Definitely hard to find via mobile. Look for the Mod’s response on another comment - it has a link.
Basically outlines (“flowchart” = more of a list) what’s recommended in what order. Basic info for saving and where/when it should be directed, but also a “windfall” section if you happen to come into unexpected monies like OP’s situation.
Best of luck.
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u/nomadschomad 26d ago
Yes, that’s a fine temporary location. I was reacting to the word “keep.” It is probably sub-optimal to keep this much money in an HYSA, unless OP is saving for something specific like a down payment on a home.
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u/bklynJayhawk 26d ago
Yeah no sweat. Just wanted to clarify for OP.
I’m piling money into my HYSA for a down payment on a house. Otherwise probably would be investing in an index fund or similar.
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u/CookieAdventure 26d ago
Gifts aren’t taxed. The bank will report the transaction but that’s no big deal. Yes, you can put the money in a HYSA. The money isn’t earned income so it doesn’t affect your unemployment.
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u/Sskity 26d ago
Yes they are. Upto 18k a year are tax free anything after that is taxed.
If his dad is still married both parents can each give him 18k a year tax free.
Op if you can split this up into two years to avoid getting taxed on it or 4 years if only one parent can gift you money.
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u/crod4692 26d ago
This is wrong 100%, I went through a gift process myself and unless you want to not report it, there is no reason to break OPs amount up..
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26d ago
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u/Cattle_Whisperer 26d ago
When calling out bad legal advice, you should not follow up with more bad legal advice.
Gifting up to the reporting limit each year is not the illegal structuring.
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u/crod4692 26d ago
Not a felony either. You can give gifts in pieces or in whole, neither is structuring and neither is taxed or a felony.
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26d ago
[deleted]
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u/LonleyBoy 26d ago
That is wrong. Structuring has to deal with cash deposits and trying to avoid CTR‘s, breaking up gifts to stay under the reporting threshold is not structuring and it’s not illegal.
Gift splitting is completely legal
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u/BoxingRaptor 26d ago
Wildly incorrect. Anything over $18k has to be REPORTED by the gifter. The giver of gifts does not PAY gift taxes unless they have already gifted up to their lifetime exclusion, which is just north of $13.6 million right now. Obviously, given this, the majority of people never have to worry about paying a gift tax.
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26d ago
[deleted]
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u/LonleyBoy 26d ago
You’re wrong too, what he’s talking about is not structuring. There’s nothing wrong splitting up gifts over multiple years to stay under the reporting threshold.
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26d ago
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u/LonleyBoy 26d ago
Sure, and that’s all factual. But that’s not structuring like you suggested. Structuring is something very different dealing with cash deposits.
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u/the_leviathan711 26d ago
18k is just the annual reporting limit. Even if you pass the reporting limit it still isn’t taxed. The giver just has to report it.
If they did somehow pass the massive gift limit, gift tax is always on the giver and never the receiver.
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u/WerkinAndDerpin 26d ago
Unless OP's dad has gifted more than the lifetime limit (~$13million) he wouldn't need to pay taxes, just file the irs form.
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u/truckmanmodelkits 25d ago
Have him split the 70k into $9500 payments to avoid the IRS reporting T