As they grow older, many grandparents consider the inheritance they'll leave behind. In some cases, the grandchildren live with their grandparents. These grandchildren represent the future of their family and the ultimate recipients of the inheritance. These grandparents often consider how to benefit their grandchildren while they are still alive without incurring tax implications for their grandchildren. Several tax-deductible options exist for grandparents to give money to the grandchildren.
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When considering the tax impact of giving financial resources to their grandchildren, grandparents need to understand how tax deductions work. A tax deduction reduces the grandparents' taxable income.
Some grandchildren incur significant medical expenses. If the grandchildren lack insurance coverage, these costs continue to grow. Grandparents can make payments for the medical expenses incurred by their grandchildren. When the grandparents pay these expenses, they can deduct them on their tax return. In order to receive this deduction, the grandparents need to pay the provider directly rather than giving money to the grandchildren first.
Seeing their grandchildren attend college provides a sense of pride for many grandparents. They want to support their grandchildren as they pursue higher education. For many of these families, the grandchildren live with their grandparents and depend on their financial support while attending college. As long as the grandparents consider their grandchild as a dependent, they can pay for their grandchild's college education and deduct the cost of tuition and fees on their tax return.
Grandparents who run their own business file their business income on their personal income tax return. Many business owners hire their children and grandchildren to work in the family business with hopes of turning the business over to them someday. They use the family business as an opportunity to train the grandchildren in entrepreneurial skills and as a chance to spend time with them. In exchange, the grandparents compensate the grandchildren for their work. As a business, the grandparents can deduct the wages they pay to the grandchildren as a business expense.
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