I have clients who want to pay their child's income tax liability. I believe that this would be a gift to the child.
Gift tax rules exclude legally required support from classification as gifts. The clients think that they can pay their child's income tax and claim it as support. Is there an IRS definition of support somewhere?
I'm encouraged by what publication 17 says: "Items not included in support: Federal, state, income taxes paid by persons from THEIR OWN income"
This would imply that those taxes might be construed as support if paid by others. But that's not definite.
Of course line 18 of the excellent support worksheet is for "other". I would include it, unless someone else chimes in with better information.
ChEAr$, Harlan Lunsford, EA n LA
Why does that encourage you? The quoted passage makes it clear that paying someone else's income tax liability is not support of that other person.
Brian - You've told the clients they can gift $24,000 with no tax due each year? I trust you're asking because they are at the annual limit? I don't believe paying the taxes is considered support, it's an obligation of the child, whether from earned income (should have had withholdings) or from interest, dividends, or capital gains. Either way, the tax should be paid from that money. JOE
Because the "person" here is the person in question, i.e. the possible exemption, and not the supporter.
To repeat: ""Items not included in > support: Federal, state, income taxes paid by persons from THEIR OWN income"
ChEAr$, Harlan
Yes the clients are already making maximum annual exclusion gifts. They are looking for loopholes besides the education and health care payment exclusions.
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