Let's say someone wins a $20 million dollar lotto jackpot and takes a lump sum cash payout that gives him $8.5 million after all taxes are paid. If that person then decides to give some of his friends and family a couple of million, would this transfer be taxed again (would the people receiving the money have to file it as income?). How could one give the money to others without having that money get taxed twice?
Yes. Same way if you earned the money and paid taxes on it, then died, and those who inherit the money pay "death" taxes. Income, is income. However, it is considered a non taxable "gift" if the amount is below a certain level. I think, don't quote me, but I think it is under 10 grand that it is non-taxable.
Is that limit on a per year basis or could one just give "a lot" of 10k gifts (if that is the limit). Doesn't it seem a bit asinine that the money is being taxed AGAIN? Will banks report any deposits made over a certain level to the IRS?
Again, this my understanding, not fact that I can link to: The total amount you can recieve from one person in a year is 10K before being taxed. So a lot of people just write a check for $9,900 to be safe. Banks track cash deposits over a certain amount, cashier's checks above a certain amount, etc. Had a friend who went to buy a car once, and wanted to pay cash (He had a cash windfall) and they informed him that they would have to report cash payment amounts above a certain level to the IRS. I suspect this law applies to other areas as well. Oh, and traveler's cheques are often under the same regulation as cash....I guess they do what they can to stop laundering money. I don't think Banks etc. are required to report personal checks---although if there is a very large deposit, it might raise some flags.
You can make a tax free gift of $11,000 once a year to each individual. You could also make a specific gift tax free by using up your once in a life time estate deduction, which was $650K, but I believe is now $1mm. By using up that deduction, you wouldn't be able to utilize it to escape the taxes your beneficiaries would have to pay later. To otherwise fork over big bucks like you're talking, it would invoke a gift tax in which the rates are horrific, like 55%, depending on the amount.
BTW, that would net around $6 mill for most lotteries. Rule of thumb is, (Gross Amount /2) x .6. Bonne chance.
You could put it in trust with the income going to whomever you designate and the corpus then going to others upon certain conditions, such as the death of the last life beneficiary. You could buy real estate, boats, cars, etc. in your name and lease it to family/friends for a $1 per year. Illegally, you could make "loans" and receive note payments on a slow pay basis or dole out cash disbursements (this could come back to haunt both of you if a cost of living audit was done and the family member wasn't discreet in their spending; it would be like trying to spend cash from illegal gains, you don't want to advertise it).
Aphster, you're in luck, it looks like the rate maxes out at 49%. Don't forget me, your biiiiiiig ET buddy. http://www.tiaa-cref.org/pubs/html/taxguide/tg9a.html
>>You could buy real estate, boats, cars, etc. in your name and lease it to family/friends for a $1 per year. << Max, I don't think it would work as logically it could be held that the transaction is not at arm's length and therefore the difference between the true and correct market rental and the $ 1 you suggest to charge could be seen in the light of being a gift. freealways