Hello and thank you for your question.
Personally, I like tropical places. To make the most of it, I suggest you do what you want with it, or better yet, invest it...
Do I need to ask if this is really a gift?
This is from the sale of a family business. All the members of the family who worked in this business have received an amount related to how many years they worked there. This is not an inheritance, nor is it a gift.
If you sold a family business and got $40,000, then that of course is a whole different ballgame. Bummer, I was thinking some place tropical would be nice...
If we put it into an IRA, will we avoid any taxes, as it would be reinvesting?
Ya, I really like the tropics :/
You can deduct contributions to an IRA pending income limitations, etc.
IRC 219 specifically I believe.
My husbands parents bought it 40+ yrs ago, recently sold it and liquidated the limited partnership
Are they still alive?
And the income was taxable to them, because they owned the partnership upon its liquidation?
We are self employed (dba), and could use it for business, but, not sure about the tax ramifications
We'll get to the tax ramifications a little more, but first please answer the above question.
not sure about that, but probably
Well, if your husband and/or you owned the partnership at the time it was liquidated, meaning the parents gifted the partnership in year(s) prior to its sale, then you would have been paying taxes on your/his distributive share of the partnerships income over the years, including this year.
No we did not own this, nor have any say in this business. It was a corporation, with the parents owning all the shares
I obviously need to ask them about this limited partnership
Good news then, the above IRC 102 applies. This is not income to you if received as a gift. The parents would have already paid any income tax, and they are gifting after tax money to you. In addition to the income tax, the gift being made is probably a reportable gift and potentially a taxable gift.
(ie... there is income tax, but then there is also gift tax)
I believe it is just a gift acknowledging our help in the years of service to their business
Gift tax is owed and paid by the person giving the gift as applicable, not the person receiving it.
So, I will note it on the schedule (whatever it is) on my taxes and no matter how I use it it will be taxed accordingly?
It's not taxed. It's not reported by you. Enjoy the money.
That's what I intend to do! Just don't want to be bitten in the end!! :) Thanks
Is there a partnership and a corporation?.... Again, you received cash, given as a gift by your parents (not a partnership interest spun off a liquidated corporation and cash, etc.).... To simply clarify here and make sure, you do not and did not own any business interest, and just received money via a gift, and that's it... then enjoy the money and report nothing, as you owe no income or gift tax.
Good question, this has always been a family business, and questions about it regarding anything at all were discouraged. It was said that all the children had a percentage of the inheritance, but this is not the inheritance as they are still alive (her words to my husband). We never were involved in any corporate meetings, nor did we pay on any shares
But, how do you cash a $40,000 check without reporting it?
Bring it to the bank.
If you were an owner of the corporation, you should have (had) tax forms coming your way.
Yes, we've done that with her Christmas checks
Right, but we are not and never were owners of this corp.
Do clarify with your parents that this is just a gift perhaps...
O.K., will do
That's it then. I hope you get to enjoy it of course!
Thank you! I think I'll take that vacation now!!!
Thank you again too for your question.