Tax-Free Gifting in 2024

Wooster Corthell |

Knowing the amount that can be gifted without taxation can be crucial for those in the position to help a child with a downpayment, home purchase or any other gift idea.

What is the Annual Gift Tax Exclusion?

The annual gift tax exclusion is a provision in U.S. tax law allowing individuals to give gifts up to a certain amount to another person, tax-free, within a single year. For 2024, the limit is set at $18,000 per recipient. This means you can give up to $18,000 each to multiple people without incurring gift tax liabilities.

Strategy 1: Spread the Gifts Across Multiple Years

If you're planning a significant gift that exceeds the annual exclusion limit, consider spreading the gift over two or more years. For instance, if you wish to give $36,000, you could give $18,000 in one year and $18,000 the next, thereby staying within the annual limit.

Strategy 2: Splitting Gifts Among Spouses

Married couples have the advantage of being able to combine their exclusions. This means a couple can jointly give $36,000 to a single recipient without triggering the gift tax. It's crucial to document this properly, often requiring both spouses to explicitly agree to split the gift on their tax returns.

Strategy 3: Paying Directly for Medical and Educational Expenses

Payments made directly to a medical institution for someone’s medical expenses or to an educational institution for tuition are exempt from the gift tax. This allows you to pay for a grandchild's college tuition or a friend's medical bill without it counting towards your annual limit.

Strategy 4: Gifting to Trusts and 529 Plans

Contributions to trusts or 529 college savings plans can also be a strategic way to gift.

  • Gifting Through Trusts: When you contribute assets to a trust, these contributions are often considered gifts. The structure of the trust can often align with the annual gift tax exclusion, helping to avoid gift tax liabilities. Trusts provide flexibility in how assets are distributed to beneficiaries, offering both control and tax benefits.

  • Front-Loading Explained: 529 plans allow you to contribute up to five years' worth of gift exclusions at once. This means a one-time lump sum can be gifted, equating to five times the annual exclusion amount, without triggering gift taxes ($90,000 in 2024). This strategy significantly bolsters a beneficiary's educational savings, ideal for those wanting to make a substantial investment in a loved one’s educational future.

Navigating the complexities of the gift tax exclusion can be tricky, but with careful planning and strategy, it is possible to generously gift to multiple recipients without incurring taxes. Remember that generosity and tax efficiency can coexist. Balancing your heartfelt gifts with smart strategies ensures your generosity is felt without any fiscal surprises.

For personalized advice on gifting strategies and other financial matters, consider booking a meeting with Wooster Corthell. Stay informed and connected by following us on LinkedIn.

Tax Planning: Wooster Corthell does not act as an account of tax planner; this is not to be construed as tax advice. Please consult your account or tax preparer to discuss your personal tax needs.