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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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Can a llc or s Corp recieve cash gift donations just like

Customer Question

Can a llc or s Corp recieve cash gift donations just like regular individuals of up to 12,000$ tax free? And can the llc or s Corp donate cash gifts to other people and also the owners or members of the corporate entity? My 3rd question is can a DBA under
the corporate entity recieve cash gifts, which the DBA belongs to the entity?
Submitted: 12 months ago.
Category: Tax
Expert:  BK-CPA replied 12 months ago.

Hello and thank you for your questions.

The recipient of a gift generally never owes taxes on it (IRC 102), but I believe you are referring to the gift tax imposed on the person making the gift. The answer is yes, the annual gift tax exclusion applies to gifts made to corporations as well (IRC 2503(b)(1) and 7701(a)(1)). The amount for 2015 is $14,000 though, not $12,000 (see https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes).

The gift tax is levied on individuals, not corporations (IRC 2501(a)(1)). Corporations do not make gifts: substance over form generally dictates a corporate gift as being made to the shareholder(s) first, and then from the shareholder(s) to the recipient(s). The distribution to a shareholder or partner will generally constitute a taxable transaction if considered a dividend or a distribution of money in excess of a partner's or shareholder's basis. Consider an individual who wanted to make a $140,000 tax free gift. By setting up 10 corporations, giving each $14,000 (the annual exclusion amount), and then having the corporations all make a gift to the same person of $14,000, the individual could evade any gift tax if substance over form did not dicate these types of transactions. Needless to say, this sort of set up is not permitted and would go beyond tax avoidance, meaning it would be considered tax evasion (the former is legal and the later is not).

A DBA, unless it is taxed as an entity separate from its owner (which isn't possible for a textbook dba), could not receive cash gifts no. The owner of the dba would be considered the recipient of the gift for tax purposes.

I hope this is helpful.

Customer: replied 12 months ago.
Ok, if someone donated to an sole proprietor business, does that mean the cash gift is donated straight to me, since it is not an entity?
Customer: replied 12 months ago.
Could the sole proprietorship business cash gift to others since it is not an corporate entity?
Expert:  BK-CPA replied 12 months ago.

A sole proprietorship is not considered an entity separate from its owner for tax purposes so gifts made to or by a sole proprietorship are considered as having been made to or by the sole proprietor (ie. LLC's can be sole proprietorships for tax purposes, so a gift to a LLC can be considered as simply having been made to its owner).

To directly answer your question then, yes, a gift to your sole proprietor business is considered a gift to you personally, not the business. A gift by your sole proprietorship is considered a gift by you personally, not by the business.

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