Posted on 12/31/2021 7:51:57 AM PST by DUMBGRUNT
Payments to employees, even if gratuitous in nature, will be deemed taxable compensation not gifts.
According to IRS
How do I avoid gift tax?
Two things keep the IRS’s hands out of most people’s candy dish: the annual exclusion ($15,000 in 2021 and $16,000 in 2022), and the lifetime exclusion ($11.7 million in 2021 and $12.06 million in 2022).
Stay below those and you can be generous under the radar. Go above, and you’ll have to fill out a gift tax form when filing returns — but you still might avoid having to pay any gift tax.
The ex-owner would pay any tax but can use his lifetime exemption to cover most or all of the tax due as long as he can also cover gifts/ estate taxes for his family under the exclusion.
From HR Block
“Winnings are Different”
Taxes on winnings should be reported as ordinary income? Generally, the U.S. federal government taxes prizes, awards, sweepstakes, raffle and lottery winnings, and other similar types of income as ordinary income, no matter the amount. This is true even if you did not make any effort to enter in to the running for the prize. Your state will tax the winnings too, unless you live in a state that does not impose a state-level income tax.
Gift tax is a federal tax on transfers of money or property to other people while getting nothing (or less than full value) in return. If the company was no longer owned by the gift giver he is getting nothing of future value from his ex employees. I’m sure tax lawyers were consulted.
Actual gifts are never taxed to the receiver. Oprah is running a business. Her "gifts" to audience members are actually marketing expenses, not gifts. They will receive 1099s for the value of those "gifts."
A few years ago my daughter had just started working for an insurance procession company.
About a month later, the owners sold if for a few hundred million.
Employees got a bonus based on their tenure. Some got six figures.
I forget what she got but it was several thousand dollars.
So then, buying the cars is a business expense for Oprah, and the value of the cars is taxable income to the recipients?
I'm a tax lawyer. The articles says, "he shared profits from the sale of the Des Moines-based minor-league baseball team with all 23 of the club’s full-time employees." This is not a gift. It's a profit sharing bonus. I'm certain that he/the company took a deduction for the amount paid. It's inconceivable to me that he sold the team, realized the profits, paid taxes on those profits and then distributed those profits to the employees without taking a deduction. He certainly issued them 1099's. Compensation is for past performance not future performance.
Buying the car is not a taxable transaction for Oprah. Giving it away for no consideration, though, gives her a business deduction for the value of the car and generates income to the recipient for the value of the car. She will send the recipient a 1099 in the amount of the value and the recipient will have to show that amount on the recipient's tax return. It's the same for game shows. The recipients of those prizes all get 1099s and must treat the value of what they receive as income for tax purposes. Many of them wind up simply selling whatever they won so they can pay the tax.
—”Rich and broke and near broke”
Thank you and all others that work day in and day out to make a go of it, employing others along the way.
My best friend offered me to be his partner when he started up. I declined but did work for him for many years.
In the early years, it was not unusual for his draw to be ZERO dollars for a hundred-hour week, and his wife put in forty-plus hours, too.
He cashed out in the depth of the 0bama years at a cheap price.
The remaining partner hung on and was doing over 30m in the Trump years.
Thank you for helping the rest of us risk-averse types.
Happy New Year!
Kindness and goodness often go unnoticed. But it is all around us.
It certainly is an interesting topic. Depends on how he wanted to structure it. Thanks for your input.
The recipients weren’t employees of the donor, but of a company in which he held stock.
Agreed, except the 22% option is a new one to me. How and when does a business get to go that route?
Pretty sure they just choose to, if they pay the bonus as regular income in your paycheck, or as a separate income,it hits the flat withholding.
I haven’t been an employer for a couple decades now, but don’t recall that option at all. I see more details on it here:
https://turbotax.intuit.com/tax-tips/jobs-and-career/how-bonuses-are-taxed/L7UjtAZbh
The 22% is just an optional withholding rate for the employer. Bonuses are taxed as ordinary income to the employee, just like salary.
Exactly what the Turbotax page states in its second sentence.
Yep. Just summarizing for those (many) who don't click links.
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