How does a donation affect my income tax?
July 13, 2024 | 50,00 EUR | answered by Eiko Hoffmann
Dear tax advisor,
my name is Lukas Netz and I am currently dealing with the topic of gift tax. I am planning to gift a larger amount of money to my son to help him financially. However, I am worried about how such a gift will affect my income tax.
Currently, I am in tax class III and earn a monthly gross income of 4,000 euros. My son is currently still in training and has no income of his own. I plan to gift him a larger sum of money to help him start his career.
My concerns revolve around not knowing exactly how and to what extent a gift will affect my taxable income. Could it happen that the gift pushes me into a higher tax bracket and therefore I have to pay more income tax? Or are there certain allowances that are taken into account for gifts?
Can you please explain to me how a gift will affect my income tax and if there are possible solutions to avoid tax disadvantages? I would greatly appreciate your expert advice on this matter.
Thank you in advance.
Kind regards,
Lukas Netz
Dear Mr. Netz,
Thank you for your inquiry regarding gift tax and its impact on your income tax. It is understandable that you are concerned about how a gift to your son will affect your taxes. I am happy to explain the relevant information to you.
Firstly, it is important to know that gifts are generally subject to tax. However, there are tax-free allowances that apply to gifts. For parents who give money or assets to their children, the current tax-free allowance is 400,000 euros every 10 years. This means that you can gift your son up to this amount without incurring any tax.
In your case, if you are planning to gift a larger sum of money to your son that exceeds the tax-free allowance, it could indeed have an impact on your income tax. The gift will be added to your taxable income and could potentially push you into a higher tax bracket, resulting in a higher income tax bill.
However, there are ways to avoid or minimize any tax disadvantages. One option, for example, could be to spread the gift over several years to fully utilize the tax-free allowance. By gifting a portion of the money each year, you can stay below the tax-free threshold and avoid or reduce any tax implications.
Another option could be to utilize what is known as a tax-free allowance splitting. This involves splitting the gift between both parents to make use of both parents' tax-free allowances. This way, you can gift a higher amount tax-free in total.
In any case, it is advisable to seek individual advice from a tax advisor to find the best tax solutions for your situation. Each case is unique and requires a thorough examination to maximize tax benefits.
I hope this information has been helpful and has addressed your questions regarding gift tax and income tax. Please feel free to reach out if you have any further questions.
Best regards,
Eiko Hoffmann
Tax Advisor
