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Old 10-14-2016, 09:57 AM
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Gifting Money to pay for stocks

I have a texas s corp. , my brother and i own it (40% him, 60%me). He is wanting to sell his stock to me for 60k. Is there a way for me to gift him money (to make untaxable) and then pay him a small amount for stock? Like this he gets his money and does not have to pay taxes on it.



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Old 10-14-2016, 11:11 PM
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I have a texas s corp. , my brother and i own it (40% him, 60%me). He is wanting to sell his stock to me for 60k. Is there a way for me to gift him money (to make untaxable) and then pay him a small amount for stock?==>>I guess part of wise tax plan may include gifting biz interests to family member(s) while you are still alive for tax purposes;in the case of gifting the shares to you, if the FMV of the stock exceeds the annual gift tax exempt limit, $14K for 2016, A form 709 needs to be filed by your bro and MAYBE there would be a tax liability(NOTE: however, most gifts are subject to the gift tax, but a majority of people never pay gift tax, due to the $14K for 2016 annual exclusion and $5.45 M lifetime exemption for 2016 (Only the amount above the $5,340K , NET GIFT TAX LIABILITY) requires the payment of a gift tax); of course the gift tax applies only to "individuals. In your case, you( a qualified S corp shareholder) as a donee, need to assume the cost basis of the 100% shareholder if theFMVof the stock is more than the shareholder's , your brother?s, basis. If the adjusted basis is more than the FMV then the basis that is used depends on whether there is a gain or loss when the stock is sold.In geenral you need to avoid related party(your bro an you) transactions at all times if possible. There are enough negative consequences to related party transactions that they are rarely advisable. A gain on a related party transaction is generally recognized, but losses are not. That means if your bro selld shares to you, a related party, all of the "gain" items are added up and reported onhis 1040, but all of the "loss" items are not dedutible. They cannot be netted. Also, the disallowed loss on a related party transaction isn't always recaptured upon a subsequent sale by the other party. For example, say if your bro owns shares of Company X with a $20K basis and he sells those shares to you for $10K, your bro obviously cannot take the $10K loss he incurred under the related party rules. If you then sell the shares for $30K , then, you will recognize only the $10k gain between his $20K basis and your $30K proceeds. However, if you later sells the shares for only $5K, your loss will only be the difference between the $10K you paid your bro and the $5k in proceeds. The $10K he lost on the sale to you will never be deducted by either of you!



However, say your brother is an employer an you are an employee then, In the context of an employer and an employee relationship, it is virtually impossible to make a nontaxable ?gift? for federal income tax purposes. if a corp does give a gift that qualifies for the tax, the tax still has to be paid by someone. When a corp gives a taxable gift, the stockholders of that corp are liable for reporting and paying gift tax; each must file a gift tax return for his "share" of the gift. Tax law is essentially silent about how to divide up the responsibility, since corps generally don't go around giving taxable gifts. Small-business corps with just a handful of shareholders may be able to assess the responsibility fairly easily . aslongas this is a closely held corp,. which most S-Corps are due to the shareholder limit, there may be transfer restrictions in the Shareholders' Agreement or other organizational documents. You need to check with the biz to make sure that then gift does not violate these kinds of provisions, if there are any.

Like this he gets his money and does not have to pay taxes on it.==>>>>>>>>>As m entioned previously.



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