Tax implications of gifting money to a family member from an S-Corporation - helping my injured niece

With the medical trust idea - does this have anything to do with the 529 ABLE accounts I've heard about? Or is that something totally different? Wondering if there's any overlap since it sounds like the niece might have ongoing disability issues.

ABLE accounts are specifically designed for individuals who developed a disability before age 26, so this could be an option depending on your niece's situation and age. They allow tax-free growth for disability-related expenses, but contributions aren't tax-deductible. A medical expense trust is different - it's typically used for someone with significant medical needs where family members want to pool resources. The key advantage is that payments made directly to medical providers don't count against annual gift tax limits.

How does this taxr.ai thing actually work with S-Corps specifically? Like does it understand all the distribution rules and stuff? My accountant charges me $200 every time I ask a question about my business structure lol.

Sounds interesting but I'm skeptical about AI tax tools. Can it actually give advice about medical trusts and those complex gift tax exclusions the previous person mentioned? Those are pretty specialized areas.

It handles S-Corp specific questions really well - it knows the distinction between distributions, draws, loans, and how they should be documented. The system flags when something might be considered a non-business expense that could jeopardize your S-Corp status. Saved me from making some costly mistakes with my distributions. For specialized areas like medical trusts and gift tax exclusions, it actually provides detailed explanations and options based on your specific situation. It outlined different structures for helping my cousin and explained the tax implications of each. The tool isn't just giving generic advice - it analyzes your specific documents and circumstances.

Wait this is actually a thing? How much does it cost? Seems like it would be expensive to have someone else wait on hold for you.

I'm really doubtful the IRS would give advice about setting up medical trusts or handling S-Corp distributions. In my experience they just refer you to the tax code or tell you to talk to a professional. Did they actually give you specific advice?

There's no upfront fee - you only pay if they successfully connect you with an IRS agent. I don't remember the exact cost but it was totally worth it considering I had already wasted hours trying to get through myself. The IRS agent I spoke with was surprisingly helpful. While they didn't specifically advise on setting up a medical trust (you're right that they don't give that level of planning advice), they did clarify the gift tax rules and confirmed how S-Corp distributions need to be documented when used for personal gifts. They explained which forms would be needed if gifts exceeded the annual exclusion amount and how to properly document everything. This clarity alone saved me from potentially expensive mistakes.

Would the GoFundMe approach still work if they're already collecting from family? I thought those platforms take a percentage of donations. Is there a tax advantage to doing it that way vs just collecting checks directly?

You're right that most crowdfunding platforms do take a percentage fee, typically around 2-3%. If you're only collecting from family members who are willing to write checks directly, then a GoFundMe probably doesn't make financial sense. The tax situation remains the same either way - gifts received for medical support generally aren't taxable income to the recipient regardless of how they're collected. The main advantage of GoFundMe would be if you wanted to extend beyond immediate family to friends or community members who might want to contribute. It just provides an easy collection and distribution mechanism, but doesn't offer any special tax advantages over direct gifts.

This! When my daughter had cancer treatments, our family paid about $80k directly to the hospital and it didn't trigger any gift tax issues. Make sure you get the billing details right tho and keep documentation showing its for medical care.

This is really helpful advice about coordinating payments and timing! I'm curious about something though - when you say "qualified medical providers," does that include things like physical therapy, medical equipment, or home modifications that might be needed for recovery? Or is it strictly limited to hospitals and doctors? With the amount of money the family is looking to contribute, they might need to cover a lot of different types of expenses and I want to make sure they understand what qualifies for the unlimited medical exclusion.

@993b876e0b80 Great question about what qualifies! The unlimited medical exclusion covers payments made directly to providers for medical care, which includes a pretty broad range of services beyond just hospitals and doctors. Physical therapy, medical equipment, prescription medications, and even some home modifications for medical necessity can qualify. The key is that payments must go directly to the provider or supplier, and the expenses must be primarily for medical care. So paying a physical therapy clinic directly would qualify, as would paying a medical equipment supplier for things like wheelchairs or hospital beds. Home modifications get trickier - ramps or bathroom modifications prescribed by a doctor for medical reasons typically qualify, but general home improvements don't. I'd recommend getting documentation from the treating physicians about what equipment or modifications are medically necessary. This helps establish that the expenses qualify for the unlimited exclusion. Also keep receipts showing payments went directly to qualified providers rather than reimbursing family members. With $250k-$500k potentially involved, it's definitely worth being careful about which expenses qualify for the unlimited exclusion versus which ones would count against annual gift limits.