Annual Gift Tax Exclusion

As the name suggests, the Annual Gift Tax Exclusion allows individuals to give money or property to another individual without having to pay a gift tax. The amount that can be given in a year is set by the IRS, and it varies from year to year. There are certain strategies that can help you stay within the limit and avoid paying a gift tax. The annual gift tax exclusion for 2024 is $17,000 per recipient. This is higher than the previous year’s limit of $16,000. Many investors time gifts and sales of assets like securities at year-end to build optimal tax results.

Annual Gift Tax Exclusion Amount

The Annual Gift Tax Exclusion can be doubled for married donors if a “gift-split” election is made with a spouse. This means that a couple could give each beneficiary $17,000 in one year without having to file a federal gift tax return. However, unused annual exclusion amounts do not carry over from year to year and must be used in the current year. In addition to the annual gift tax exclusion, there is a lifetime gift tax exemption of $11.7 million. This is the maximum amount you can give to anyone during your lifetime without paying gift taxes. The lifetime exemption amount is adjusted for inflation.

Lifetime gifting is an effective estate planning tool that can help you reduce your taxable estate and transfer wealth to your beneficiaries during your lifetime. However, it is important to understand the implications of making taxable gifts and how the annual gift tax exclusion can affect your lifetime gift tax exemption. Moreover, you should consult with your accountant before making any significant lifetime gifts to ensure that you are in compliance with the law.

In addition, a person can also give up to $5 million to loved ones before incurring any gift or estate taxes. This lifetime exemption will revert to its pre-TCJA levels in 2026, so it is important for individuals and families to work with their trusted advisors to determine whether additional gifting should be made this year. This could include contributions to a 529 college savings plan or paying tuition bills for children. However, there are many complex issues that must be considered when it comes to estate planning, and a full review of current strategies should be completed.

How to Report Annual Gift Tax Exclusion?

You must file a federal gift tax return, Form 709, for gifts exceeding the annual exclusion limit. However, it’s important to note that unused annual exclusion amounts carry over for one additional calendar year. This can be a helpful way to reduce your taxable estate by using up your annual exclusion over time. It’s important to remember that the annual exclusion only applies to gifts of a “present interest.” This means that a gift must be something that the beneficiary can use or access right now