How are taxes handled on unexplained cash deposits?

Wait I'm confused. So if my mom gives me like $20,000 next year, does she have to pay taxes on that? Or do I? And how would the IRS even know about it if it's just cash?

Your mom wouldn't owe actual tax on a $20,000 gift, but she would need to file a gift tax return (Form 709) because it exceeds the annual exclusion (which will be around $18,000 in 2025). This filing is informational - it counts against her lifetime estate/gift tax exemption, which is currently over $12 million, so no immediate tax is due unless she's already given away millions. You never pay tax on gifts you receive - the gift tax system puts any tax responsibility on the giver, not the recipient. As for the IRS knowing, cash transactions over $10,000 are reported by financial institutions, and if you deposit large sums, those transactions create a paper trail. Trying to hide large gifts can create more problems than the gift itself.

Did it help you figure out how to handle the bank deposits? Like did it tell you if you should deposit it all at once or spread it out? I'm in a similar boat but worried about triggering some kind of audit.

Does this actually work for complicated tax situations? I've tried other AI tools and they usually give super generic answers that don't actually help with specific scenarios. How detailed does it get?

Yes, it actually warned me NOT to spread out deposits to avoid reporting thresholds! That's called "structuring" and is illegal even if the money is legit. It suggested depositing the full amount at once with documentation about the gift source. Much better than my original plan to make smaller deposits. The answers were surprisingly detailed. You can ask follow-up questions for your specific situation, which is what makes it different from generic AI. When I asked about whether I needed to document the gift somehow for my own records (vs. tax filing), it gave me specific advice about keeping a signed note from my grandpa mentioning the gift date, amount and purpose - something none of the generic articles mentioned.

This sounds like a scam tbh. Why would I pay some random service to call the IRS for me? Do they somehow have a secret backdoor to skip the line or something?

Wait I'm confused. How exactly does this work? Do they have some special access to the IRS that normal people don't have? And is it safe to use a third party service like this when dealing with tax matters?

It's definitely not a scam - they just use automated systems to handle the hold time instead of you having to do it personally. They don't have special access or backdoors - they literally wait on hold just like you would, but their system handles it so you don't have to sit there waiting. They don't need any of your personal tax info to place the call - they just get you connected to the right department at the IRS. Once they have an agent on the line, they call you and connect you directly. So you're still the one talking to the IRS about your situation, not them. It's basically just a hold-time service that calls you when a human finally picks up.

Oh that's such a good point I hadn't even considered! I'm actually hoping to apply for a mortgage within the next year. What kind of documentation did the lender accept from your parents? Should I ask my aunt for a formal gift letter now before depositing the money?

Yes, definitely get a gift letter now! My lender accepted a simple letter that included: the date of the gift, the exact amount, a statement that it was a gift with no expectation of repayment, my aunt's contact information, her relationship to me, and her signature. I'd also recommend keeping a copy of any documentation your aunt might have showing where the money came from originally (like withdrawal slips if she took it from her savings). Lenders can get really picky about proving money isn't a hidden loan, especially for down payments. Some even require bank statements from the gift giver showing they had the funds to give. Better to collect this now while it's easy rather than scrambling later when you're in the middle of a mortgage application!

Exactly this. Cash gifts can affect eligibility for need-based government programs like Medicaid, SNAP, etc. depending on how they're structured. Some programs look at assets while others only look at income. Worth checking if you're receiving any benefits.

This is really helpful advice! I'm new to this community but dealing with a similar situation. My grandmother recently gave me $18,000 in cash and I was planning to deposit it in smaller chunks to avoid the bank reporting requirements. After reading these comments, I realize that would actually be structuring and could get me in trouble even though the money is completely legitimate. @Ana Rusula - when you say proper "documentation, what" exactly should I have ready when I go to deposit the full amount? Should I bring the gift letter with me to the bank, or is that just for my own records? I want to make sure I handle this correctly from the start rather than trying to fix mistakes later. Also, does anyone know if there s'a difference in how credit unions handle these deposits compared to regular banks? My credit union knows me well since I ve'been a member for years - wondering if that personal relationship makes the process any smoother.

@Aisha Hussain Great question about documentation! When I deposited my large cash gift, I brought a copy of the gift letter with me just in case, but the bank didn t'actually ask for it during the transaction. The teller just processed it normally and mentioned they d'be filing a CTR since it was over $10,000 in cash. Having the documentation is more important for your own records and potential future needs like (mortgage applications or if questions come up later .)Credit unions typically follow the same federal reporting requirements as banks - they still have to file CTRs for cash deposits over $10,000. However, you re'right that the personal relationship can make the experience smoother. My credit union teller actually took a moment to explain the reporting process to me, which helped ease my anxiety about it. The key thing is to be straightforward if anyone asks about the source. Don t'volunteer unnecessary details, but if questioned, simply explain it s'a gift from your grandmother. The gift letter serves as backup documentation if needed, but most routine deposits don t'require you to proactively show it. Just make sure your grandmother understands she may need to file Form 709 since $18,000 exceeds the annual exclusion limit for 2024.