IRS and $12000 yearly taxfree gifting

marianelaine · #1 (**permalink**) 02-03-2007, 11:01 AM

Greetings,
My 90 year old mother gifts me the annual tax free gift allowed of $12,000 per year. This year she wants me to quit my job and start driving her on trips. Can she hire me and pay me a salary to do this without the IRS saying this salary is part of the $12,000 gift? What type of records would I need to keep to stay clear of any IRS problems? Thanks!!!!

MonkeyMama · #2 (**permalink**) 02-04-2007, 07:59 AM

She can pay you a salary but she is going to have to withhold taxes on your behalf.

She will withhold your taxes on your check and then pay them in when she files her annual tax return - schedule H I believe (for household employees like maids, nannies, helpers).

I actually have a client who pays her granddaughter wages to help her out. I am not sure if she gives gifts too, but probably. I would be careful that the amount is reasonable for the work you do though - if she pays you $500/hour, no way. But $10-$30/hour may be reasonable. I would document the hours worked and rate of pay - just keep for your records.

If it is reasonable and reported on her tax return, then should be okay.

http://taxes.about.com/od/preparingy.../scheduleh.htm

Joan.of.the.Arch · #3 (**permalink**) 02-04-2007, 10:07 AM

I worked as an independent contractor for someone who surprised me with a large personal gift after he sold the business and I continued contracting to the new owners. He checked it out with his lawyer and accountant, I verified on my side that it was legitimate. I always kept records of my work and hours. Actually, my logs are precise down to the minutes. I even saved the nice letter he sent along with the gift, so that I would have proof of the intention of the giver, should it ever somehow become an IRS issue. I had no problems with the gift, but of course, I did carefully pay tax on my earnings.

One thing that might make my situation more clear to an outsider was that I was no longer a contractor to the giver at the time he gave the gift. So it was no longer a business relationship. I was now working for somebody else, doing the same work as previously, so I could demonstrate that my business income was from other than the giver.