If I maxed out my gift contribution ($36K) to my child, would paying for his taxes be considered another gift?

Thanks for the info! But wait - what about the kiddie tax? If the child is under a certain age, doesn't some of that investment income get taxed at the parent's rate anyway? Does that change anything about who should pay the taxes?

You raise an excellent point about the kiddie tax. For children under 19 (or under 24 if a full-time student), unearned income above a certain threshold is indeed taxed at the parent's marginal tax rate. However, this doesn't change who legally owes the tax. The tax liability still belongs to your child, even though the rate might be calculated based on your income. So if you pay that tax bill, it's still considered a gift to your child for gift tax purposes.

Did it give you specific advice for your situation? I'm considering doing something similar with my niece and nephew, but I'm maxing out gifts to both of them, so I'm worried about going over the annual exclusion.

I'm skeptical of these online tools. How accurate was the advice? Did you verify it with an actual tax professional? These gift tax rules seem complicated and I'd be nervous about relying on software.

It provided very specific advice tailored to my situation, including how to document everything for potential future audits. The analysis walked through different scenarios based on my specific numbers and showed the implications of each option. Yes, I actually did verify with my accountant afterwards, and she was impressed with how accurate the guidance was. She mentioned a few small state-specific details to consider, but said the federal gift tax analysis was spot-on. The software actually cited specific tax code sections and IRS rulings.

How does this service actually work? Seems fishy that they can somehow get through when regular people can't get past the hold music for hours.

This sounds like a scam. There's no way some random service can magically get you to the front of the IRS phone queue. They're probably just charging you to wait on hold, or worse, collecting your personal info.

It's actually pretty straightforward - they use an automated system that waits on hold for you and then calls you when an IRS agent picks up. It's basically like having someone else wait in line for you. It's definitely not a scam. They don't ask for any tax information or personal details beyond your phone number so they can call you when they reach an agent. They're just solving the hold time problem, not providing tax advice or handling any sensitive information. I was skeptical too until I tried it and was talking to an actual IRS agent within minutes after weeks of failed attempts.

Thanks for the suggestion! I've actually considered a 529, but I want to give my daughter more flexibility with the funds in case she doesn't go to college or has other goals. Does the 529 have to be used for education, or can it be used for other things too?

A 529 plan is primarily designed for educational expenses. If the funds are used for qualified education expenses (tuition, books, room and board, etc.), the earnings are completely tax-free. If the money is used for non-educational purposes, you'll pay income tax on the earnings plus a 10% penalty. However, there are exceptions to the penalty in certain situations, like if your child gets a scholarship. Also, recent changes allow using up to $10,000 from a 529 to repay student loans, and you can now roll some unused 529 funds into a Roth IRA. So there's a bit more flexibility than there used to be, but definitely less than a custodial account.

Not a dumb question at all - that's actually what my financial advisor suggested when I was in a similar situation! Just calculate approximately what the tax liability might be and reduce the gift by that amount. Keeps everything clean and simple.