PayPal Friends and Family etc....

[BobC]

Originally Posted by swarmee

Not sure what it has to do with your title of eBay.

If you pay your brother 2000 in PPFF, it would look like $2,000 in income to him. If he declares it to be a "gift" to the IRS (maximum of like $15,000 per person per year), he owes no taxes on it. Once he pays you back, you declare it as a gift as well.

The correct statement is that Paypal Friends & Family payments are not supposed to count toward the $600 and not supposed to ever be reported on a 1099-K form.

Not sure what you're getting at when making statements like "If he declares it to be a gift to the IRS" or, "Once he pays you back, you declare it as a gift as well" are supposed to mean, but by making them it is pretty obvious to me you've never filed a gift tax return in your life, nor understand exactly how it works and is perceived by the IRS. Am I right?

To start off, a person receiving a gift doesn't "declare" anything to the IRS about it being a gift. You are correct though in that a person receiving a gift, regardless of the amount or value, does not ever owe any income or other type of tax on the actual gift received.

And the person making the gift doesn't have to ever "declare" anything to the IRS either, unless they exceed the annual gift tax limit amount, which was $15,000 per person for 2021, but was raised to $16,000 per person for 2022. So you can make as many different gifts of up to $16,000, in cash or value, to as many different people as you want in 2022, and you do not have to say, do, or declare anything to the IRS.

If you do end up making a gift of cash or value in excess of $16,000 to any one person in 2022, the person making the gift is supposed to file a federal Form 709 annual gift tax return for that year in which the gift was made. The Form 709 gift tax return has the same filing deadline as your federal income tax Form 1040 return, which is normally April 15th. And which can automatically be extended for 6 months like your 1040 return, by simply filing a federal extension, Form 4868, by the original filing due date.

Your comment about making a loan to your brother for $2,000, which he declares is a gift so he owes no taxes on it, and then you finally declaring it a gift only after he pays you back, makes absolutely no sense at all. First off, when the $2,000 payment is made, it is either a gift or a loan, and your brother wouldn't normally be subject to paying income or any other type of tax on either. Normally the only time your brother should be subject to paying taxes on that $2,000 is if it was paid for services/work he provided or performed for you or maybe a business you own, like as an independent contractor you pay to do your landscaping, paint your house, etc. In which case, you probably should be preparing and sending your brother (and the IRS) either a 1099-MISC or 1099-NEC form reporting the $2,000 paid to him (unless he's set himself up as a corporate entity, in which case you don't need to send 1099s to the corporation as they aren't required).

Secondly, when he finally does pay back the $2,000 loan in say the following or an even later year, exactly how are you now declaring it a gift to the IRS, and why would you? If he paid back the loan, THEN IT WAS NEVER A GIFT! And besides, as I already mentioned, if it somehow was a gift, you don't have to declare, report, or file anything unless the total of all gifts to your brother in that one single year exceeded the annual gift tax limit, which again, is $16,000 for 2022.

And for the record, even if you do make gifts to someone in excess of $16,000 in value this year, it doesn't necessarily mean you're going to currently end up paying any gift tax to the IRS. Every US taxpayer/citizen under current law is granted a lifetime gift and estate tax exemption of $12.06M for 2022, which applies to gifts throughout their life, or against their estate at the death. That exemption amount is currently subject to COLA, and thus generally changes every year (it was at $11.7M for 2021). The requirement to file and report on federal Form 709, for every year in which you made gifts in excess of the annual gift tax exemption amount to any one person, is so the IRS knows how much in excess gifts you are reporting for that year so they can deduct it from your lifetime exclusion amount. Whatever is left when you die is the amount that can then be passed to your heirs without any inheritance tax being owed on it. The whole idea is so that someone getting old and/or sick just can't gift away everything before they die to escape the federal inheritance tax on their estate when they finally do pass. And that also means that when you file and report these gifts on your annual federal Form 709 gift tax returns, you don't owe any current gift taxes, unless you end up using your entire lifetime gift and estate tax exclusion first. And so you know, under current law, the lifetime gift and estate tax exclusion is currently scheduled to be cut in half starting in 2026. Of course it could also be reduced (or however unlikely, increased) at any time by the government.

And one final point. If you are legally married, you can potentially double the amount of your annual gift tax exemption for gifts made to any single person by getting your spouse to agree to split the gift with you. So for example in 2022, if married and your spouse agrees, you could give up to $32,000 in gifts to someone and still not currently owe any gift tax, nor have your lifetime gift and estate tax exemption amount reduced by even a single dollar. Of course to do so, you and your spouse will both have to prepare and file your own individual Form 709 annual gift tax returns for the year the split gift was made, and affirmatively declare and report on them that you are splitting a gift(s). And there is no such thing as a jointly filed gift tax return for married couples, everyone is responsible to file their own.

Also for the record, some states have inheritance taxes as well, and I'm not even going to try and mention or get into the potential impact of gifts on them.

So people, please, please, please be careful when you are posting stuff about taxes and such on an online forum. If you aren't really experienced and truly don't know what you're talking about, it may be best to say nothing at all, as opposed to passing on bad info that could end up causing harm to others. And Swarmee, this isn't knocking you for trying to be helpful. It's just that some of what you're saying may not be currently or totally accurate, but someone reading it who thinks it is may end up doing something they shouldn't, or not doing something they should, as a result.