As the year ends, many consider their finances and tax strategies. A smart way to lower potential estate taxes and show generosity is by giving cash gifts before December 31. What we’re talking about is non-charitable gifting…. generally these are cash/property transfers to family members; these transfers do NOT result in an income tax deduction. The Tax laws allow you to gift/transfer a certain amount annually without incurring gift taxes or filing a gift return. This can help reduce your taxable estate while benefiting loved ones.
Annual Gift Exclusion Overview
Taxpayers can transfer significant amounts to their children or other recipients each year without incurring gift taxes by utilizing the annual exclusion. Adjusted for inflation, the exclusion amount for 2024 is $18,000 per recipient. For 2025, the annual exclusion will be $19,000 per recipient. For example, a taxpayer with three children can give a total of $54,000 ($18,000 × 3) this year without federal gift taxes. Furthermore, in this example, if both parents made gifts, they could make $108,000 in tax-free gifts for 2024. If gifts stay within this limit, no federal gift tax return is needed. However, for 2024 if gifts exceed $18,000 per recipient, the first $18,000 is excluded, and only the excess amount is taxable.
What else can be considered non-taxable gifts?
- Tuition or medical expenses paid directly to educational or medical institutions (the educational and medical exclusions).
- Gifts to your spouse
- Gifts to a political organization for its use.
You can split gifts if you are married.
If you’re married, gifts made in a year can be considered as split between both spouses, allowing a married couple to transfer up to $36,000 per recipient thanks to two exclusions. For instance, a couple with three married children (can gift a total of $216,000 ($36,000 × 6) annually to their children and their spouses.
Both spouses must agree to gift splitting, which is noted on the gift tax return(s) filed. If one spouse transfers more than $18,000, a gift tax return must be submitted, even if the total gifts fall within the $36,000 exclusion.
More rules to consider
Gifts not covered by the exclusion may still avoid tax liability because a tax credit eliminates federal gift tax on your first taxable gifts, up to $13.61 million in 2024. However, using this lifetime exclusion credit reduces the credit available for federal estate tax at death.
Other consideration for tax-free gifts, to qualify for the annual exclusion, a gift must be a “present interest,” meaning the recipient must be able to enjoy it immediately. Other rules may apply. Feel free to contact your Wegner CPA advisor with questions or if you need assistance preparing a gift tax return for any taxable gifts made. Gift tax returns are due by April 15th (following the calendar year of the gift).
