Whether you receive cash tips as part of your job in the gig economy or are giving a cash gift to a relative, you need to know when and how to report that money to the IRS. There are different rules and reporting requirements depending on whether cash is income or a gift, how much money changes hands and if you're the giver or receiver.
“It’s not just cash,” says Nicole Rosen, an IRS enrolled agent based in Wenatchee, Washington. Gifts of property – such as a car – can fall under the same rules. “That can be cash in the view of the IRS,” she says.
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Here's a closer look at each rule and how it might affect you:
Cash gifts can be subject to tax rates that range from 18% to 40%, depending on the size of the gift. The person making the gift is responsible for reporting the gift to the IRS and paying any tax due but thanks to annual and lifetime exclusions, most people will never have to pay a gift tax.
In 2024, you can give gifts of up to $18,000 to as many people as you want without any tax or reporting requirements.
"That number changes annually," Rosen says.
Since 2021, the annual exclusion limit has increased $1,000 each year, but future tax laws could change that. For now, the threshold is per person, meaning a couple can give a combined gift of up to $36,000 to each of their children in 2024, for instance.
“Gifting cash to family members can be a significant component of an overall estate plan,” says Scott Sturgeon, senior wealth advisor and founder of Oread Wealth Partners in Leawood, Kansas.
“Making tax-free gifts of cash or even other assets to family members while you’re living can be a great way for you to actually witness those family members benefit from those gifts,” he adds.
Some cash gifts, such as those people give to pay certain tuition or medical bills, are excluded from any tax requirement. To be eligible for this exclusion, however, you must give the gifts directly to the school or health care provider.
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If a person's gift exceeds the annual exclusion limit, they must file Form 709 with the IRS. But that doesn't mean they'll have to pay taxes.
“It doesn’t necessarily generate a tax right away,” says Daniel Laginess, CPA and president of Creative Financial........