Don’t Let Christmas Check Burn Hole In Your Pocket It’s Not Polite, And The Irs Won’t Buy It

If somebody gives you a check as a gift this holiday season, you can help keep the giver in your corner by cashing or depositing it right away.

First of all, it’s the polite thing to do. Holding on to the check uncashed for any length of time gives the impression that the gift isn’t much appreciated, or possibly that you are too disorganized to make good use of it.

But simple etiquette is by no means the only reason to endorse the check and present it for payment as soon as you can - by the close of business on Dec. 31, if at all possible.

At any time of the year, slowness in depositing checks you receive can complicate the payer’s job of personal recordkeeping. If you balance your own checkbook regularly, you’re already aware of the problems this can cause.

Beyond that, delays at year-end may cause extra trouble if the giver is trying to plan carefully around the rules covering taxes on estates and gifts.

Just how tricky the system can be for generous givers is illustrated by a recent ruling from the Internal Revenue Service seeking to clarify when a gift by check is considered to be completed.

CCH Inc., a firm that tracks and publishes tax information, reports that the IRS used to consider that a gift wasn’t officially made until the check cleared - that is, the recipient’s bank received payment on it from the donor’s bank.

Now, in the wake of a 1994 court case, the IRS will consider the gift delivered when the recipient presents it for payment, provided a few other conditions are met.

This distinction may be important to the giver. He or she may be working to distribute money as tax-free gifts, up to a maximum of $10,000 per recipient per year, to minimize the size of the estate that may be subject to taxes after he or she dies.

If a substantial gift intended for this year is allowed to lapse over into next, it may mess up this effort, leaving a bad memory with the giver where there should be an afterglow.

Or who knows - maybe the giver has some purely personal reason, independent of the tax laws, for wanting to plan gifts by annual amounts. Whatever the circumstances, it helps to keep things as clean and simple as possible if you cash the check immediately.

One obvious exception, of course, arises when the giver puts a future date on the check such as Jan. 2, 1997, or asks you to delay cashing it until after New Year’s.

Whatever the giver’s wishes, anticipating and following them is a good strategy for inviting a repeat gift at a future time.

Afterthought: The same kind of consideration for others can also be very helpful when you are giving financial gifts - whether cash, check, or some sort of investment.

If, for example, you want to start a mutual fund account for a niece or grandson, the benefit of the gift may be enhanced if you check first with the child’s parents to see what sort of fund would best fit an overall financial plan.

So as not to confuse a young child on a small allowance, some parents might strongly prefer a savings bond or other investment gift to a lump sum in cash.

And what if your gift, as a side effect, creates some tax problem for the child or the parents? In the worst case, that might cast a shadow of doubt on the whole motivation behind the gift, creating ill feelings out of what was supposed to be a gesture of good will.