Legal Question in Tax Law in California

Re: Gifts

yes, there is potential gift tax liability. however, there are several exclusions. first, there is an unlimited exclusion for gifts to a US citizen spouse (foreign spouses have a limit of $117,000 [$120,000 in 2006]). second, there is an annual exclusion of $11,000 ($12,000 in 2006) per donor per donee (a married couple can give up to $22,000/24,000 per donee). third, there is an exclusion for gifts of medical expenses and educational expenses (paid directly to the institution) in some cases. fourth, there is a lifetime exclusion of $1,000,000 per donor.

if the annual exclusion is exceeded in any year, a gift tax return is required, even if no tax is due.

see also:

http://www.irs.gov/publications/p950/index.html

http://www.irs.gov/instructions/i709/index.html

Re: Gifts

Your winnings are taxable as income. If you give away some of the money, I don't believe you get a deduction unless you spend it on something that is tax deductible like a charitable donation. However, please confirm this with a CPA.

On the issue of gift tax, I believe the limit is $10,000 per person, per year without being subject to tax. Let's say you wanted to give $11,000 to your son. In order to avoid the gift tax, you could give $10,000 to your son and $1,000 to his wife (assuming he is married).