Discussion:Gift tax question - Independent Contractor
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| 20 June 2007 | |
| I have an elderly client who has 2 home health care workers that she would like to leave $10,000 to (each). She asked me this year if she could just give them the $10,000 this year. She is paying them currently as independent contractors. If she pays them, can the $10,000 be excluded from compensation and treated as a gift? If not, is there any way to give them money before she dies without them having to pay SE tax on? | |
Death&Taxes (talk|edits) said: | 20 June 2007 |
| Discussion: Tax on cash gifts received? is another discussion on this issue
Seriously, Sarah, I had a case where my client did independent consulting work for a another consultant. In addition, he and his wife were personal friends with the man and his wife. In 1985 or 1986, my client received a letter sent to both himself and his wife, addressed to them, and giving them a $10,000 check from a joint account. The letter explained that they wanted to share their good fortunes at having such friends. Unfortunately my client ran into the auditor from Hell. He added this 10K to the 19K the client had been paid and reported [in addition to his W-2 from teaching school]. The auditor even claimed the giver had sent a 1099, which he could not produce in IRS's records. We filed a Tax Court Petition and in a meeting with Appeals settled on 80% gift, 20% income. The tax plus SE Tax came to a lttle over $500, which was cheaper than hiring my boss to represent him in court. I saw only problems in Court: my client was angry and a potentially dangerous taxpayer. As a witness, he would have been a totally loose cannon. We would have to depend on testimony from the giver, who would have to come to Court. Who knew what he would say? The issue of the agent 'creating' a 1099 might be embarrassing to the Service, but the Deficiency Notice didn't mention the form....mention of it was only on a IDR asking us to explain what the 1099 was about. In your case, Google "Duberstein" and read the case. It might give better insight, and do remember, the recipients are not your clients. | |
| 20 June 2007 | |
| These are probably household employees and should receive a W-2. | |
| 20 June 2007 | |
| The problem really is there is no consistency between the gift tax definition of a gift and the income tax definition. Note that in Duberstein, donor took an income tax deduction for the gift. For the most part if there is a current employment relationship you have a bonus, but these are case by case determination and precedent seems to be immaterial. | |
