Gifts ARE taxable (in the US) if they are over the “exclusion” amount, which is $15,000 for 2021, which is less than the $36K you’ll need in your example.
There are legal ways to inflate that, though. Parent A and Parent B can give $15K each to Spouse 1, and then to Spouse 2 also. That’s $60K per year from the parents to the kids, tax-free. More info available here.
Gifts over $15000 still aren’t taxable. They just don’t count toward your lifetime exclusion for estate tax purposes. And the current lifetime exclusion is $11.7 million, an amount that every breathless person I have heard panicking about cannot even dream of having without winning the lottery.
I think you mean that the amount over $15,000 does count toward your lifetime exclusion in that your $11.7 million exclusion will be reduced by $5000 if you give someone a $20,000 gift.
And the (theoretical ) tax is paid by the person giving the gift ( or the estate) not the recipient.
Yes, sorry clumsy wording. It is the $15,000 that doesn’t count.
The people I know of who need to worry about exceeding a $6M or $12M exclusion are structuring their estates in vehicles that don’t involve giving $120,000 a year to their kids and grandkids for 10 years, because that still wouldn’t make a dent.
In addition, the exclusion is for the entire estate. If a parent, gives an amount above the exclusion to four kids and three grandkids, the entire total goes against the the estate. Additionally, you can’t avoid the exclusion by splitting a $20M estate evenly between two bequests. The estate is taxed and then the funds are distributed. Distributed funds are not taxed.
There’s always the time-honored method of laundering money: The casino. You buy in at the tables with cash like everyone else, play a low-vig game, repeat at different tables for a while, then cash out your ‘winnings’. They’ll even give you a receipt to prove the money is ‘legit’.
This doesn’t work for tax avoidance, but it does if you are trying to convert illicit money into taxable income.
When you think about it do you believe a tavern or pub pay remotely close to the proper tax on ever nites cash resets…no way, think how that add up across this nation
If this works, why play at all? Just buy the chips, sit around for a while, and cash them out.
Hmmm, I’d leave a casino with a lot more cash than I usually do using that method!
The casinos are very good at knowing if you’ve played or not, especially if you are a high roller.
But I don’t see how this works to launder money. Surely you would need to be able to show that you had won the money.
Indeed so. In the US, you should be getting a W-2 G from the casino for any sizable winnings.
This can vary a bit depending on game but generally in the neighborhood of $1000 plus or minus a few hundred - $1200 for slots for example - and should list actually winnings, i.e. your wagers won’t be included as income.
Perhaps this works differently in other countries, but I don’t see how this works. The casino itself is going to tell the IRS you didn’t win squat from them.
And the casino is on the watch for counterfeit money, so will be suspicious of anyone buying chips, not using them, and then cashing out.
The W-2G is completed on a per-transaction basis. If I’m playing slot machines and I win $1200 on a single bet, the casino will complete a W-2G. If I end my casino trip with $2000 more than I started with, but no individual win is more than $1200, I will not receive a W-2G - but I am still required to report that $2000 as gambling winnings even though I wasn’t issued a W-2G .And the same goes for table games although with different limits ( I think if the net winnings are both greater than $600 and at least 300 times the amount of the wager )
That’s true but for any sizable bit of money laundering to take place, it defeats the purpose.
The point of the laundering is you want the casino to tell the government you have ‘legitimate’ income by providing a paper trail of your ‘winnings’. By deliberately structuring your payouts below any reporting limit, you’re back in the situation where you have cash income with no verifiable source. You don’t want to ask the authorities to simply accept your word that you had a lot of small wins at the casino that add up to tens of thousands of dollars (or more) of winnings over the course of a year that all happened to fall under reporting limits.
The suggestion was to have the casino say “this guy cashed out $X and played for 100 hours” but also not have them report $X wasn’t actually won and maybe the session was actually a loss. It just doesn’t work that way.
Based on what you’ve said, it’s sounds like if a money-launderer were prepared to pay tax as an acceptable “fee” for laundering money, the following would work:
Buy $50,000 of chips. Make a large number of long-odds bets, let’s say 100 bets each staking $500 at 100/1. Let’s assume that the outcome is in line with statistical expectation, and one of these bets wins, giving a $50,000 payout. All the other bets lose, so the money launderer has the amount of money he started with.
If I understand correctly, the casino does not report NET winnings. So it does not report how many chips you purchased, not does it take into account all your losing bets on the W-2G. In this case, it generates a W-2G reflect the one bet that won $50,000. If you were a “normal” gambler, you could document the losses as a deduction on your tax return to reduce the amount of tax payable on your winning bet. But the money launderer does not do this, he just reports the win, pretending that he just made a single bet and got lucky. He must pay tax on the $50,000, but he can now “explain” the money.
I think this could work once, with a single large bet. But it depends on claiming that you just got very lucky with one bet. You could not plausibly do this every year and claim that every year you made a single 100/1 bet and got lucky. Similarly, a large number of small bets would not work, because the law of large numbers makes it statistically impossible to win.
So I don’t see how this could work as a systematic method to launder money.
You’d be best off claiming to win playing poker. There are actually people who make tens or even hundreds of thousands a year. It is a game that uses skill, not just luck, so someone claiming to be consistently winning is not nearly as suspicious as someone claiming to be winning against house games.
I’m not talking about deliberately structuring payouts to stay below the reporting requirements. All I’m talking about is that one could report say $10,000 ( or more) worth of winnings over the course of a year on your 1040 without having a single W-2G , because that can actually happen This very clearly says you are supposed to report all winnings- and if they are telling you
You must report all gambling winnings as “Other Income” on Form 1040 or Form 1040-SR (use Schedule 1 (Form 1040) PDF), including winnings that aren’t reported on a Form W-2G
then the IRS isn’t going to give you a problem because you don’t have a W-2G. Other entities might , depending on where you actually got the money you are trying to launder- but they won’t be able to get you on income tax evasion because you didn’t evade income tax.
But for a large number of small bets at games of pure chance, net winning is impossible. So you must be reporting gambling wins without deducting gambling losses. That might superficially make the IRS happy because you are paying more tax that you should pay. But it should attract closer scrutiny - why are you doing this? Why are you not deducting losses when you could, and where is the money coming from to fund the concomitant losses that statistically must be occurring?
As @k9bfriender suggests, the only way around this would be to claim winnings from poker, where it’s not pure chance. But I suspect that a cursory audit would easily catch this - you’d have to explain where exactly you were playing poker and winning $50,000 a year. You’d surely have a high profile reputation or an online paper trail that you could produce if you were really that successful as a poker player.
Maybe it should - but that doesn’t mean it will. My husband’s employer for years paid sales reps a standard travel “reimbursement” that did not depend on expenses, was exactly the same amount every week, paid even when they were on vacation and was reported on a 1099 for nonemployee compensation rather than on their W-2. That was wrong in a number of ways * but the IRS never questioned the company - not even when a couple of employees were audited over this very issue. The IRS should have noticed that the W-2 and 1099 were from the same company- but either they didn’t notice or they noticed and just didn’t care.
* If it’s the same amount regardless of expenses, it’s really salary or wages and should be reported on the W-2 and subject to SS and Medicare tax. ( avoiding those taxes is why his employer did it this way) If it’s an accountable plan (where you are only reimbursed for actual expenses) , it isn’t income at all. There are very few circumstances where someone should receive both a 1099 and a W-2 from the same entity.