Q: I paid 17k cash to buy a car. And i got the money from my family and friends. I donot work. And i just got to know that,
The dealership reported to irs about the purchase. What are the chances of me getting audited? And can i say i got the money from my friends as the source? And will they ask to person, whom i got money from, the source of money?
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A:
In this situation, there are a few important points to consider:
1. Large cash transactions: Car dealerships are required to report cash transactions exceeding $10,000 to the IRS using Form 8300. This is part of the IRS's efforts to combat money laundering and other illegal activities.
2. Audit risk: While being reported on Form 8300 does not automatically trigger an audit, it may increase the likelihood of the IRS taking a closer look at your tax return and financial situation. However, an audit is not guaranteed.
3. Source of funds: If you are audited, the IRS may inquire about the source of the funds used to purchase the car. You can explain that the money was obtained from family and friends. However, it's essential to have proper documentation of these loans or gifts, such as written agreements or gift letters, to substantiate your claim.
4. Gift tax implications: If any individual friend or family member gifted you more than the annual gift tax exclusion amount ($18,000 for 2024), they may be required to file a gift tax return. However, this does not necessarily mean they will owe gift taxes, as there is a lifetime gift and estate tax exemption (currently $13.61 million per individual for 2024).
5. Honest reporting: It is crucial to be truthful in your dealings with the IRS. If audited, provide accurate information about the source of the funds and any supporting documentation.
Given that you do not work, the IRS may inquire about your overall financial situation and how you support yourself. It's advisable to consult with a tax professional or attorney who can provide guidance specific to your circumstances and help you navigate any potential interactions with the IRS.
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