Q&A: This generous gift has no tax effects

Dear Liz: If I give $15,000 to my grandson, do I report it on my tax return? Is it deductible? Does my grandson report the gift on his tax return and does he owe tax on it? What if three sets of grandparents (parents and stepparents of his parents) do the same?

Answer: No, no, no, no and it doesn’t matter for tax purposes (although obviously your grandson should be delighted he has such generous grandparents).

Gifts to individuals aren’t tax deductible, but neither are they taxable to the recipient.

People can give a certain amount each year to as many recipients as they like without having to report the gifts via a gift tax return. In 2019 and 2020, the limit is $15,000. Each grandparent could give up to that amount to your grandson; he wouldn’t have to report the income on his tax returns, and it wouldn’t cause any of you to have to file gift tax returns.

There’s no limit to the number of people who can give $15,000 to your grandson this way.

You wouldn’t owe gift taxes until the amount you’d given away above the annual exemption limit exceeded $11.4 million.

Q&A: Working past 70

Dear Liz: If I continue to work after 70, will Social Security taxes still be deducted from my check? I understand my benefits will cap out at 70, so why would I need to still pay into the fund?

Answer: Because Social Security is insurance, not a bank account.

And it may not be true that your benefit maxes out at 70, if you continue to work. It’s true that delayed retirement credits no longer increase your benefit if you delay starting Social Security past age 70. But as long as you continue working, you’re potentially growing your benefit.

Your Social Security check is based on your 35 highest-earning years, adjusted for inflation. If you make more in a current year than you made in one of those previous highest-earning years, the current year will be substituted for the earlier one. That in turn can increase your benefit. This can happen at any age, including after you start benefits.

You might not see much increase, of course, or any increase at all if you’ve earned a high income for a long time. If you exceeded the maximum income limits subject to Social Security taxation every year for 35 years, your benefit wouldn’t increase with additional work. (In 2019, for example, the maximum income limit is $132,900; you don’t pay Social Security tax on earnings above that level, although you continue to pay Medicare tax.)

On the other hand, your benefits won’t be stopped once you collect as much from the system as you paid in. You will continue receiving benefits for as long as you live, even if that amount far exceeds what you’ve paid in taxes. That’s insurance worth paying for.

Thursday’s need-to-know money news

Today’s top story: How to choose the right health plan. Also in the news: Your data is out there: how to take action, 7 retirement savings mistakes financial advisors see too often, and what to do if you haven’t filed your taxes in years.

How to Choose the Right Health Plan
Open enrollment season is here.

Your Data Is Out There: Don’t Freak Out, Do Take Action
Taking preventative measures.

7 Retirement Savings Mistakes Financial Advisors See Too Often
How they help their clients recover.

What to Do If You Haven’t Filed Your Taxes in Years
Time to come clean.

Q&A: Don’t keep a mortgage just for the tax deduction

Dear Liz: Does the new tax law, with its increased standard deduction, change the calculus of maintaining my mortgage? I owe about $250,000 at 3.25% on a 30-year mortgage. I no longer itemize, so I don’t get the benefit of the tax deduction for the interest. My payments are about $1,500 a month, but I could easily pay it off.

Answer: It never made much sense to keep a mortgage just for the tax deduction. The tax savings offset only a portion of the interest you pay. (If you’re in a 33% combined state and federal tax bracket, for example, you’d get at most 33 cents back for every $1 in mortgage interest you paid.)

A more compelling reason to keep a mortgage would be if you were able to get a better return on your money by investing it, or if you didn’t want to have a big chunk of your wealth tied up in a single, illiquid asset.

Thursday’s need-to-know money news

Today’s top story: Moving to escape taxes? Make sure it’s a clean break. Also in the news: 4 smart ways to split bills with friends while traveling abroad, 5 auto-buying tips from a former undercover car salesman, and 7 tips for becoming an ethical shopper.

Moving to Escape Taxes? Make Sure It’s a Clean Break
You could face a residency audit.

4 Smart Ways to Split Bills With Friends While Traveling Abroad
Thinking outside the app box.

5 auto-buying tips from a former undercover car salesman
Don’t get taken for a ride.

7 tips for becoming an ethical shopper
Finding companies that align with your values.

Moving to escape taxes? Make it a clean break

Breaking up can be hard to do if the other party doesn’t want to let you go. People who move out of high-tax states may learn this the hard way — through a residency audit.

States such as New York, California and Illinois use the audits to claim that your recent interstate move was just a tax dodge and that you still owe their state income taxes. Proving you’ve actually moved and plan to make the new place your permanent home — yes, the burden of proof is on you in a residency audit — often requires far more than flashing your new driver’s license or spending a certain number of days outside the old state. In my latest for the Associated Press, how to prepare for a residency audit.

Q&A: Unloading a timeshare

Dear Liz: How can a timeshare owner get rid of the timeshare and claim the loss on taxes?

Answer: Timeshares typically are considered a personal asset, like a boat or a car, so the losses aren’t deductible. The best way out of a timeshare is often to give it back to the developer, if the developer will take it. You also could try to sell it on sites such as RedWeek and Timeshare Users Group. Unless your timeshare is at a high-end property, you are unlikely to recoup much and may have to pay the buyer’s maintenance fees for a year or two as an incentive.

Monday’s need-to-know money news

Today’s top story: Your guide to earning bonus miles with airline promotions. Also in the news: 4 important features to finding the perfect home, why some people don’t mind overpaying the IRS, and this cash-envelope budgeting system turns back-to-school shopping into a money lesson.

Your Guide to Earning Bonus Miles With Airline Promotions
Check out these limited-time offers.

Look for these 4 important features to find the perfect home
Sometimes good enough is perfect.

Here’s why these people don’t mind overpaying the IRS
They’d rather get a refund.

This cash-envelope budgeting system turns back-to-school shopping into a money lesson
Letting your kids make the decisions.

Tuesday’s need-to-know money news

Today’s top story: Apps that encourage you to spend. Also in the news: Advice for weaning your grown kids off your credit cards, why some people don’t mind overpaying the IRS, and how to protect yourself from falling interest rates.

These Types of Apps Could Prompt Impromptu Spending
You don’t need extra help spending money.

Advice for weaning your grown kids off your credit cards
Time to cut them loose.

Here’s why these people don’t mind overpaying the IRS
Yes, you read that correctly.

How to Protect Your Savings From Falling Interest Rates
A few options.

Tuesday’s need-to-know money news

Today’s top story: 5 simple ways to get out of credit card debt faster. Also in the news: Why you should take a first-time homebuyer class, taxes on micro-investing earnings, and 10 frugal back-to-school shopping tips.

5 Simple Ways to Get Out of Credit Card Debt Faster
Becoming debt-free faster.

First-Time Home Buyer Class: Why Take It?
You could have a lower monthly payment.

Don’t Forget About Taxes on Microinvesting Earnings
Those apps come with 1099s.

10 Frugal Back-to-School Shopping Tips
Back-to-school doesn’t have to break your budget.