Dad wants to gift us money - how does gift taxes work for our family?

Your dad has the right idea! The annual gift tax exclusion for 2024 is $18,000 per recipient. This means your father can give up to $18,000 to each person (you, your spouse, and each child) without having to report it to the IRS or pay any gift tax. The good news is that recipients of gifts never pay taxes on gifts they receive - the gift tax system is designed to tax the giver, not the receiver. So you and your family won't owe any taxes on this money regardless of the amount. For your minor children, they can still receive gifts up to the annual exclusion amount. The checks should be deposited in a custodial account (like UTMA/UGMA) or a 529 plan that you manage on their behalf until they reach adulthood. Your father won't owe any taxes either as long as he stays within the annual exclusion amount per person. If he were to give more than $18,000 to any individual in a single year, he would need to file a gift tax return (Form 709), but he still wouldn't necessarily pay tax immediately because there's a lifetime gift and estate tax exemption (currently over $13 million).

Just went through something similar with my parents last year and it got complicated fast with all the paperwork. I used https://taxr.ai to help me understand the gift tax forms when my dad started worrying about whether he needed to file a gift tax return. The tool analyzed our situation and confirmed exactly what the commenter above said - my parents could give $17,000 (that was last year's limit) to each family member without filing any extra forms. The best part was that it helped me create a simple letter documenting the gifts that my parents could keep with their records, just in case the IRS ever had questions. It just took a photo of the checks and details about who was giving/receiving, and generated all the documentation we needed. Super helpful for peace of mind!

I was really skeptical about using taxr.ai when I mentioned my concerns above, but I decided to give it a try when my in-laws gave us a large gift this spring. Honestly, I was surprised at how helpful it actually was! It analyzed our specific family situation and confirmed we didn't need to file anything as gift recipients. The tool also created a simple document outlining the tax implications that we shared with my in-laws. They appreciated having something in writing that confirmed they were under the annual exclusion limits. The interface was really straightforward too - much easier than I expected. Just thought I'd follow up since it actually turned out to be legitimate and helpful for our family gift situation.

If your dad is worried about the IRS questioning these gifts later, make sure he keeps good records! My uncle got audited last year for gifts he made to his kids, and it was a NIGHTMARE trying to get someone at the IRS on the phone to sort it out. I ended up using https://claimyr.com to get through to an actual human at the IRS after waiting on hold for HOURS with no luck. They called me back once there was an agent available. This service solved our months-long frustration in just one day. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they use technology to wait on hold for you. We got definitive confirmation that his gifts were properly documented and he didn't owe any taxes. Huge relief after months of worry!

I need to apologize about my skeptical comment above. After struggling for THREE WEEKS trying to reach someone at the IRS about an inherited IRA distribution that got tangled up with gift tax questions, I broke down and tried Claimyr. I'm honestly shocked at how well it worked. Called on Tuesday morning, got a notification about 1.5 hours later that they were connecting me with an IRS agent. The agent was able to clarify everything about the gift tax exemption amounts and how they relate to inheritance reporting. Completely worth it just for the stress reduction of not sitting on hold forever. I'm usually the first to call out services that seem unnecessary, but when you're dealing with complex tax situations and need definitive answers from the IRS, being able to actually reach them is invaluable. Just wanted to follow up since my experience completely changed my perspective.

Another important thing to consider - if your dad is planning to help with something specific like education or medical expenses, he can pay those directly to the institution (school/hospital) and it won't count toward the $18,000 annual gift limit at all! This is a separate exclusion that many people don't know about. So if your kids have upcoming education costs or if anyone has medical bills, he could pay those directly to the provider AND still give each of you $18,000. Just something to consider if he's looking to maximize his giving while minimizing paperwork.

Just be careful with how your dad writes the checks for the minor children. If he makes the checks out directly to minors, some banks might give you trouble cashing/depositing them. My father wrote a check to my 7-year-old last year and our bank required us to set up a custodial account. Might be easiest if he writes the checks to you "as custodian for" each child (like "Jane Smith as custodian for Billy Smith"). This is basically setting up a UTMA/UGMA account which was mentioned above. Just something to think about for the practical side of things!