gift is taxable but is “loan” or “debt” taxable?
(a) you give away your money - gift tax The person who receives the gift doesn't owe any tax.  If you give it out in small amounts, there will be no gift tax. It could have tax and Estate issues for you depending on the size of the gift, the timing, and how much you give away in total.  Of course if you give it away to a charity you could deduct the gift. (b) you loan someone some money - tax free?? It there is a loan, and and you collect interest; you will have to declare that interest as income. The IRS will expect that you charge a reasonable rate, otherwise the interest could be considered a gift. Not sure what a reasonable rate is with savings account earning 0.1% per year. (c) you pay back the debt you owe - tax free ?? tax deductible ?? The borrower can't deduct the interest they pay, unless it is a mortgage on the main home, or a business loan. I will admit that there may be a few other narrow categories of loans that would make it deductible for the borrower. If the loan/gift is for the down payment on a house, the lender for the rest of the mortgage will want to make sure that the gift/loan nature is correctly documented. The need to fully understand the obligations of the homeowner. If it is a loan between family members the IRS may want to see the paperwork surrounding a loan, to make sure it isn't really a gift. They don't look kindly on loans that are never paid back and no interest collected. If you are looking to transfer money to another person in the US, you can do do with no tax consequence.  The current annual gift limit is $14k per year per person, so for example, my wife and I can gift $56k to another couple with no tax and no forms. For larger amounts, there is a lifetime exclusion that taps into your $5M+ estate tax. It requires submitting a form 709, but just paperwork, no tax would be due. This is the simplest way to gift a large sum and not have any convoluted tracking or structured loan with annual forgiveness. One form and done. (If the sum is well over $5M you should consider a professional to guide you, not a Q&A board) The difference is whether or not you have a contract that stipulates the payment plan, interest, and late payment penalties. If you have one then the IRS treats the transaction as a load/loan servicing. If not the IRS sees the money transfer as a gift.
I'm not familiar with US tax law in particular, but the general principle around the world tends to be that interest-free or low-interest loans are taxed as gifts of the difference between a commercial interest charge and the actual interest charged. You could also forgive ($13,000 - waived interest) of the loan each year. Also, remember that there's a lifetime exemption (covering inheritance as well) of $1,000,000 which can be used for any amounts over the $13,000. As much as you want. There's no tax on gifts you receive. Gift tax is on the donor, i.e.: the person giving the gift. The $100K limit is for reporting. Gifts of $100K or more per year from foreign sources must be disclosed on form 3520 attached to your tax return. But there's no tax. Read more here. When your debt is forgiven, you have to consider the amount written off as an ordinary income item (with the exclusion of the debt originated from the purchase of primary home). If you're trying to write the debt off from your taxes - then it won't work. Even if you can expense the debt forgiveness, you will incur tax liability on your personal taxes side, and in addition you'll be out of cash in your business. So basically you'll end up paying it with after tax money, exactly the thing you're trying to avoid. In addition, you're dealing with related persons here, which means that the loss deduction might not be allowed (depends on the actual details of the transaction), so you might actually end up paying more taxes with this scheme that just paying off the loan directly (if your business pays taxes separately from your person). A loss on the sale or exchange of property between related persons is   not deductible. This applies to both direct and indirect transactions,   but not to distributions of property from a corporation in a complete   liquidation. For the list of related persons, see Related persons   next. "A loan is not a taxable income. Neither is a gift. Loans are repaid with interest. The interest is taxable income to the lender, and may or may not be deductible to the borrower, depending on how the loan proceeds were used. Gifts are taxable to the donor (the person giving the gift) under the gift tax, they're not a taxable income to the recipient. Some gifts are exempt or excluded from gift tax (there's the annual exemption limit, lifetime exclusion which is correlated to the estate tax, various specific purpose gifts or transfers between spouses are exempt in general).  If you trade for something of equal value, is that considered income? Yes. Sale proceeds are taxable income, however your basis in the item sold is deductible from it. If you borrow a small amount of money for a short time, is that considered income? See above. Loan proceeds are not income. does the friend have to pay taxes when they get back their $10? No, repayment of the loan is not taxable income. Interest on it is. Do you have to pay taxes if you are paid back in a different format than originally paid? Form of payment doesn't matter. Barter trade doesn't affect the tax liability. The friend sold you lunches and you paid for them. The friend can deduct the cost of the lunches from the proceeds. What's left - is taxable income. Everything is translated to the functional currency at the fair market value at the time of the trade. you are required to pay taxes on the gross amount Very rarely taxes apply to gross income. Definitely not the US Federal Income taxes for individuals. An example of an exception would be the California LLC taxes. The State of California taxes LLCs under its jurisdiction on gross proceeds, regardless of the actual net income. This is very uncommon. However, the IRC (the US Federal Tax Code) is basically ""everything is taxable except what's not"", and the cost of generating income is one of the ""what's not"". That is why you can deduct the basis of the asset from your gross proceeds when you sell stuff and only pay taxes on the net difference." No, money transferred for a loan or a gift is not taxable. If you pay your parents interest, they'll have to pay tax on that. And if they give you money and then die within seven years, the gift may become liable for inheritance tax. As far as I know (I am not a tax professional or IFA!) there would be no tax implications or other burden on the recipient of the loan under UK law, even if it ended up being treated as a gift rather than a loan. There are no clauses about money being in the account for 90 days in UK housing transactions, however under money laundering rules your brother's solicitor might need sight of loan agreements to verify where the funds came from (I think it would depend on whether you paid the money to your brother direct, in which case there would be no problem, or if you paid it direct to the solicitor for the purchase). What Canadian law might say about capital gains / inheritance tax (if the Canadian IRS did decide the loan counted as a gift) I have no idea. "The IRS doesn't tax ""increased wealth"" They tax Revenue -- income.  If this money or property came to you as a gift, you would owe no tax on it but the giver probably would owe gift tax.  If it came to you as a loan, you would owe no tax on it but the lender would owe tax on any interest you pay (and must charge at least minimal interest, though they could give that to you as a gift and possibly not have it be taxable). But if came as payment for goods or services or investment or anything of that sort, and you aren't demonstrably tax-exempt, it is income and you are responsible for declaring it as such and paying tax on it." I know the money isn't taxable when I send it to my parents Yes this is right they send it to their nephew as it will count as a gift No this is incorrect Yes. Refer to Income Tax guide on relations exempt under gifts. Gifts received from relatives are not charged to tax. Relative for this purpose means:   (a) Spouse of the individual;   (b) Brother or sister of the individual;   (c) Brother or sister of the spouse of the individual;   (d) Brother or sister of either of the parents of the individual;   (e) Any lineal ascendant or descendent of the individual;   (f) Any lineal ascendant or descendent of the spouse of the individual;   (g) Spouse of the persons referred to in (b) to (f).   Friend is not a relative as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).​ Even if you assumption were true, i.e. your dad gives it to his brother and his brother gives it to his son ...  But if this is done sequentially and soon one after the other, is it taxable? The intent is important. One can do it immediately or after few years; if the intent is established that this was done to evade taxes, then you will have to pay the tax as well as penalty. Would I be taxed at my personal income tax rate upon withdrawal of the   funds for this loan from my professionally managed, balanced 401k (not   Roth funds)? Yes. This is a regular distribution. Why wouldn't you be taxed? What's gifting has to do with anything? If taxable, this would move me to the next higher tax bracket. Depending on your other income - it may, or may not. Whether or not taxable when pulling funds out of the investment   account, when I'm repaid, do I owe Federal tax only on the interest   income portion of repayment funds or on the lump sum & interest   received (all of which which would return to my retirement account in   lump)? Only interest. And you will not return it to your retirement account. Not in a lump and not in installments and not in any other way. As Stan's answer recommends, don't give them the money; make the checks payable to the credit-card company or the bank that issued the student loan so that those debts get repaid for sure, or else you run the risk of that money also going the way of all flesh and the debt remaining untouched. Next, file a gift tax return (Form 709, which is not filed along with Form 1040; all 709s go to one IRS office as described in the instructions), saying that you gave your son and daughter-in-law gifts of $20K each (say) and that you want to have $12K (excess of each gift over and above the annual exclusion of $14K per recipient) count against your combined lifetime estate tax and gift tax exclusion (which is currently over $5M). So, no gift tax needs to be paid. (As JoeTaxpayer's comment points out, if you are married and your spouse is willing to join in this, then as much as $56K can be given without anyone having to file Form 709).  Then, change your will to reduce your son's and daughter-in-law's inheritance by $40K. If and when they return the money (as a gift to you), change your will back  by removing the reduction. If the repayment is is a lump sum, the gift tax return stratagem can be used by your son and daughter-in-law while if they pay back over two years, no gift tax return need be filed.  So., that's it. No interest to be paid by anybody, no gift taxes to be paid by anybody, no income to be reported on any tax return, etc. This will work unless you have serious concerns about reducing your combined lifetime estate tax and gift tax exclusion by $12K, and if you do, you can afford to hire plenty of lawyers to advise you on better strategies. "Gift taxes are paid by the giver, not the ""givee"". You'd have to claim the $500 on your income tax forms, though." In the US, gift tax always falls on the donor, never the recipient, and gifts are not taxable income to the recipient. The IRS could raise questions if there is an employer-employee relationship between donor and recipient; your employer cannot give you money or property (e.g. a Rolex watch) or benefits (e.g. a house to live in rent-free) and claim that it is a gift, so that you do not have to pay income tax on that money.  But, your parents need to be careful; that $14K per person is the exemption for the whole year and once they give you that, anything extra (birthday present, Christmas present etc) is subject to gift tax (for them) though you can still enjoy your gifts without any tax issue. It is correct, in general. Gift tax is indeed at 35%, but you have the first 14K of your gift exempt from it for each person you give to, yearly (verify the number, it changes every year). You can also use your lifetime exemption ($5.45M in 2016, subject to change each year), but at the amounts you're talking about it still will not be enough. Charitable (501(c)) organizations, paying for someone's tuition or medical expenses (directly to the providers), political donations, transfer between you and your spouse - these are all exempt from gift tax. If you have 10 millions to give, I'm sure you can afford a $200 consultation with a EA/CPA licensed in your state. "Any inward remittance received by your Parents cannot be treated as ""Income"" as per the definitaion. This can at best be treated as ""Gift"". However in India there is No Gift tax for certain relations and there is no ceiling on the amount. In your case gifting of money by son to father or viceversa is allowed without any limits and tax implication. However if you father were to invest this money in his name and make gains, the gains would be taxable.  However if the Money is being transfered with specific purpose such as to buy a property, etc make sure you have the Bank give your dad an certificate of Inward remittance. This is also advisable even otherwise, the Inwared Remittance certificate from Bank certifies that the credit entry in the account is because or funds comming into India and if the tax authorities were to question the large amount of credits, it would be proof that it is due to Inward remittance and not due to say a sale of property by your dad Helpful Links: http://www.moneycontrol.com/news/tax/gift-tax-whatsa-gift_664238.html http://www.thehindubusinessline.in/bline/blnri/exp-tax.htm Edit 1: What you father does with the money is treated as EXPENSE, ie spends on day to day expense or pays off your Loans or Pay off his loans have no relevance from a Tax Prespective in India.  The only issue comes in say you have transfered the funds to buy a property and there was no purpose of remittance specified by Bank's letter and one want to reptriate this funds back to US, then its an issue. If you transfer the funds directly to your Loan account again there is no tax implication to you in India as you are NRI." &gt;Tax benefit of debt  The interest on repayments for debt (eg bonds, loans) is tax deductible (as interest expense). The way you figure out the after tax cost of debt is repayment*(1-tax rate).    &gt;Marginal tax benefit  Just as marginal benefit, this is asking for every ADDITIONAL (ie marginal) dollar of debt, what is my additional tax benefit (tax deduction).    Pretty rough explanation, let me know if there is something in particular that doesn't make sense.