Giving away money - any tax consequences?

OK. We owned a decent business but have now retired. We had 2 amazing employees and always wanted to reward them for their efforts. We are not rich, but the stock market has been reasonably good to us, and we were thinking of giving perhaps $2000 to each of these people for this Christmas. This amount would really help them out. It’t not a big amount to us, but it would be a nice chunk to each of them. So, my question is – are there any tax consequences to us doing this?

Our taxes are so simple now… social security, stock dividends. some donations… That’s about all.

Thanks for your insights! I am sooo glad the Fool did not close this board.

-Footsox

Oh. I didn’t ask – are there any tax consequences for THEM??

Thanks.

I would think gifting them $2k each would fall well below the individual gift tax threshold. On the other hand, if you are delivering this as a bonus in the form of compensation, there may (likely) be withholding issues.

Fuskie
Who thinks the key is to make the gifts personal outside of your now retired business…


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We owned a decent business but have now retired. We had 2 amazing employees and always wanted to reward them for their efforts.

For 2022 the gift tax limit is $16,000 per recipient. I’m assuming you are gifting from personal monies so your $2000 gifts wouldn’t trigger any tax consequences.

If this is from a business account I would guess it would be like any other paycheck and withholdings would occur.

JLC

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We owned a decent business but have now retired. We had 2 amazing employees and always wanted to reward them for their efforts.
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we were thinking of giving perhaps $2000 to each of these people for this Christmas.

Do you still own, or have an interest in, the business? If you do, then my take would be that these gifts are compensation. Gifts that are compensation are treated very differently than gifts between individuals.

If these are personal gifts, since they fall within the annual gift limit of $16,000 between individuals, there would be no tax consequences for either of you.

If these gifts are compensation, then the income would need to be reported on the W-2 or 1099 (as appropriate) and any required withholding would need to occur.

AJ

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As others hinted, and aj nailed down, the key determinant is your relationship, past and present, to the company, and to some extent, its entity type.

There will be no tax consequences to you as the donor of the gift.

If the company was a sole proprietorship or partnership or LLC treated as if a partnership, and you still maintain an ownership interest in the company, then any “gift” will be treated as compensation income, subject to all the usual taxes on the recipient.

If you’ve severed all ties to company and the gift is given from personal funds, then the “gift” is a true gift and will be tax-free to the recipients.

If the company was a corporation or LLC treated as a corporation, and the gift is given from personal funds, then it is a gift. If given from corporate funds, then compensation.

Ira

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If its a business expense its taxable income to the recipient. If its your personal tax paid income its a tax free gift.

It should only be taxed once.

Also remember that if this is a gift paid directly to these individual it does not qualify as a charitable donation.

There will be no tax consequences to you as the donor of the gift.

If the company was a sole proprietorship or partnership or LLC treated as if a partnership, and you still maintain an ownership interest in the company, then any “gift” will be treated as compensation income, subject to all the usual taxes on the recipient.

In the event the recipient has to pay taxes, wouldn’t that include payments into Social Security? And wouldn’t that mean that the giver, being the company (in a sense) has to pay their side of the Social Security withholding?

In the event the recipient has to pay taxes, wouldn’t that include payments into Social Security? And wouldn’t that mean that the giver, being the company (in a sense) has to pay their side of the Social Security withholding?

Yes. That’s what treating it as compensation entails - all the usual obligations for both parties.

Ira

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