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Did I Mess Up Our Tax Returns?

Justin, I just filed my father’s taxes and my own. After I sent in both returns, I stressed out that I might have left out something important. Last year my father gave me $30,000, but I didn’t include that on my return. Have I messed up? – Laura

Laura, As a general rule, gifts are not income to the recipient. When it comes to the income tax returns of our clients, our firm always recommends that people work with qualified tax preparers to be completely certain, but based on the facts you presented in your question it seems unlikely that you made a mistake in leaving this gift off your return.

A more complicated question is whether your father should have reported this gift to the IRS with his return. Federal law includes a gift tax, and that tax comes with certain reporting requirements. Until a person gives away several millions, no gift tax would be due. Even when a gift tax is due, it’s payable by the person making the gift. Even in this instance, the gift is not taxable income to the recipient. The reporting requirements, though, can be complicated.

The bigger concern with gifts often centers on long-term care rules as opposed to tax rules. Any gift, large or small, can cause a problem when a person needs long-term care within five years of the date of the gift. We see many more problems on this issue than we do with gift tax rules.

The best advice I can give you is to suggest you call our office to set up a meeting to explore these issues in more depth. In most cases, we do not charge for an initial strategy session with a potential client. You’d also benefit from the book You Need A Plan—it has an entire section on tax issues like these. You can pick up a copy at YourPlanMatters.com.

Are you in a similar situation?

We can help you navigate your unique circumstance.

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