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According to an article published today in several media outlets including Fortune magazine, George Clooney once gave 14 of his friends $1 million dollars cash. The article also claims that Clooney paid the taxes on all of it so his friends could accept the money tax-free.

The friend group, dubbed “The Boys,” reportedly helped support Clooney when he first came to Hollywood, letting him sleep on their couches and offering additional support. The Ocean’s Eleven star said he wanted to let them know how important they were to him.

As a kicker, Gerber added, Clooney said he also had paid the group’s taxes.

How is this possible? First of all, how did Clooney know everyone's tax rate, and second of all, if he paid the taxes for them, isn't that an additional gift - incurring yet additional gift taxes?

Anna
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CodyBugstein
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3 Answers3

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Clooney may have been confused or misquoted.

When he gives a friend a large gift, gift tax is owed. The giver pays this tax, not the recipient. Clooney would have been required to pay this tax. The gift is not considered income for the recipient, so it shouldn't impact their income taxes.

This is a little different then when, for example, Oprah gives all of her audience members a new car. In that case, the "gift" is considered a prize, which is a business expense for Oprah, but is considered income for the recipient, with income tax due. In that case, if Oprah wants the recipients to not have a tax burden, she needs to give additional cash to each recipient so that they can pay their taxes.

Ben Miller
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"How is this possible? First of all, how did Clooney know everyone's tax rate, and second of all, if he paid the taxes for them, isn't that an additional gift - incurring yet additional [tyrannical] gift-taxes?"

As @BenMiller says, under US tax law it is the giver who has to pay gift taxes, not the recipient.

But even if that was not the case, if the writer meant that he paid someone's regular income taxes for the year, "how did Clooney know everyone's tax rate"? Well, he could ask them. That doesn't seem a difficult problem. "isn't that an additional gift?" Sometimes a business will offer a sale where they say "we'll pay you're sales tax". So if the regular price is, say, $100, and the sales tax is, let's suppose, 6%, normally you would have to pay $106: $100 to the seller and $6 for sales tax. But if they're going to claim that they're paying your sales tax, then that means the $100 has to be the sum of the sale price plus the sales tax, i.e. $100 must be 106% of the sale price. So do a little arithmetic, $100 / 1.06 = $94.34. 6% of $94.34 = $5.66, which makes a total of $100. I suppose with income taxes the math could get more complicated because giving more money could push the person into another tax bracket, but with sufficient mathematical manipulation -- or be lazy and make a guess and then adjust it by trial and error -- you could work out the right amount.

Jay
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My take on this is that Clooney paid something extra to cover the taxes. Not an exact figure, which for most people would not be all that important. Each of his friends got a lot of money, which they, in the end, did not have to worry about. He might have even said something to them like: "I'll give you a million bucks. If the taxes eat into that, let me know and I'll make it up to you." but who looks that kind of gifthorse in the mouth?

T.E.D.
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