Is Cash Gifting Legal?

Is cash gifting legal? The short answer is yes. But the truth may be a bit more involved than a simple "yes."

The IRS says that you may gift cash to another person. In fact, you may gift as many people as you choose in any calendar year. The upper limit of your gift is $12,000 per person, so that allows you to make a lot of cash gifts. But, if you are looking into any cash gifting program, the reason you are considering such a program is probably not to just give away your money, I'm willing to bet you're hoping to receive some also. And this is where the cash gifting programs fall apart.

IRS Code Title 26, Sections 2501-2504 and 2511 state that your gift of cash is not taxable, unless you are expecting something in return, and that includes receiving something from someone you haven't gifted anything to.

In other words, if you give a cash gift to one person expecting to receive a cash gift from someone else, even if you don't know that someone else, then you are engaged in a taxable activity according to the IRS. Any income you receive from participating in such a program is fully taxable as ordinary income.

So, you must pay taxes on all gifts you receive.

To me, this isn't such a bad deal. You're probably gonna be paying taxes one way or another anyway, right? So this idea of cash gifting is just another way of making legal - but taxable - income.

If cash gifting is something that appeals to you, go for it. But generally, I may wish to talk with a legal and/or tax advisor before getting involved with any cash gifting program - just to cover my butt, you know?

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