Perspective: Robert Smith will pay Morehouse graduates’ student loans. Who will pay the tax bill?
Philanthropist and billionaire Robert F. Smith recently announced that he was paying off all the student loans for the 2019 graduating class of Morehouse College. By Michelle Singletary Michelle Singletary Personal finance columnist Email Bio Follow Columnist May 21 at 4:11 PM Getting something for free in America can still end up costing you something.
In 2004, Oprah Winfrey famously gave a car to each of her 276 audience members to celebrate a season premiere of her talk show: “You get a car! You get a car! Everybody gets a car.”But for many, the excitement turned to some disappointment when they realized that their new Pontiac G6 sedan would come with a hefty tax bill.
Winfrey’s giveaway was intended for audience members who desperately needed a car, so it’s understandable that some weren’t completely happy about having to pay taxes on something they thought was free. For winners who worried about how to pay the tax they could trade down for a less expensive model thus reducing taxes owed, take out a loan to cover the tax bill using the car as collateral or accept the vehicle and then sell it to raise the money need to pay the IRS.
“The receipt of a gift is excluded from income regardless of the amount or the source,” said Eric Bronnenkant, head of tax at online financial adviser Betterment. “Assuming the payment of the graduates’ student loans is classified as a gift, it would be income-tax free.”As of this year, donors are allowed to give up to $15,000 annually to an individual without triggering the reporting of the gift to the IRS. If you go over this amount, you are generally required to file a gift tax return .
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