||Ask the Dollar Diva
Editor's note: In April 2006, FDIC deposit insurance
coverage on retirement accounts held at banking
institutions was raised from $100,000 to $250,000.
Non-retirement account FDIC deposit insurance coverage
remains at $100,000.
Big Brother tracks large transactions
Dear Dollar Diva,
I have a two-part question:
When you place a large sum of money in a
joint bank account, do you have to pay a gift tax or other tax?
Can you remove the money in large sums to
make cash purchases, such as a house, or is there a limit?
Part 1: To answer this question, the Diva needs
to know where the stash of cash came from:
For services provided (even if it's
called a gift): The Internal Revenue
Service would consider an amount equal to the value of the services
provided to be compensation, so you would have to pay income
and Social Security taxes on that.
A gift to you -- no services provided:
Any amount you received in excess of the value of any services
provided would be a gift. If the gift is taxable, the person
who gave the gift, not the recipient, is responsible for paying
the gift tax.
A person can give $10,000, tax free,
each year to as many individual recipients as he wants.
His spouse can do the same.
Proceeds from sale of investments:
If you sold some investments and deposited the proceeds in your
bank account, you would not have to pay any tax just for depositing
the cash in the account. If the investments were sold at a gain,
you would report the capital gain on your income tax return
and pay income tax on it, regardless of what you did with the
Keep the following in mind when you deposit large
amounts of cash in your bank account:
In the event of an IRS audit, you could
be asked to produce bank statements for whatever year is under
audit. If the amount you've reported as income on your tax return
is different from the deposits made to your bank account, the
burden of proving that the deposits are not income falls on
If your account is insured by the Federal
Deposit Insurance Corporation, it is only insured for up to
$100,000. If you have more cash than that, limit your deposits
to no more than $100,000 per bank.
Part 2: There is no limit to the amount you
can take out of your bank account. If you have a million dollars
in your account, you can withdraw it and use it to buy a house.
Be aware that the IRS requires the filing of a Form
8300, "Report of Cash Payments Over $10,000 Received in a Trade
or Business," by anyone engaged in a trade or business who receives
more than $10,000 in cash in one transaction. The business transaction
can be anything or anywhere -- from a deposit in a savings or checking
account to a cash payment to the guy who installed your new entertainment
room. If more than $10,000 in cash changes hands, it has to be reported.
Reportable transactions include the following:
- Cash, money orders, traveler's checks received
- Purchase of real estate or personal property
- Business services provided
- Bail bond
- Paying debts
-- Posted: Oct. 11, 1999