What is the best way, taxwise, to handle a gift I received from my husband’s S corporation?

What is the best way, taxwise, to handle a gift I received from my husband’s S corporation?

by Robert D. Hornick, CPA | Sep 11, 2019

My husband has an S corporation and wants to gift me $12,000 for the 2019 tax year. I’m wondering if this is claimed on Form 1120 or a 1040. Also, does he take it as a distribution and then show the gift on the 1040? What is the best way to handle this?  

We need to separate the giving and receipt of a gift (between spouses) from the S corporation being the source of the funds.

With respect to the taxability of funds paid from an S corporation to a shareholder and/or employee of that S corporation, only after reviewing the financial information and tax history of the S corporation can a determination or recommendation be made as to the income tax consequences, if any. The fact that the funds from an S corporation are being used for a gift has no bearing upon the tax treatment of the funds. If, for example, your husband took $12,000 out of his savings account and gave it to you, there would be no income tax to be paid and no income tax reporting for that gift. 

Often, gifts are an estate planning concern. Gifts between spouses generally are not subject to the gift tax. In instances of gifts to children or other individuals, there could be a federal gift tax return filing required of the donor.

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Answered by: Robert D. Hornick, CPA, is with Hornick & Associates LLC in Philadelphia.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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