Gift Smart: How to Give to Loved Ones Without Tax Hassles

If you’re thinking about sharing some of your wealth with family members or loved ones, it’s helpful to understand the IRS rules around gifting. Gifting can be a wonderful way to support the people you care about, and it’s also an effective strategy for reducing your taxable estate. With a few guidelines in mind, you can make sure your generosity doesn’t come with any extra paperwork or tax surprises.

What Is the Annual Gift Tax Exclusion?

The annual gift tax exclusion is the maximum amount you can give to someone in a single year without needing to file a gift tax return. In 2024, this limit is set at $18,000 per recipient. So, you can gift up to $18,000 to as many people as you’d like, and it won’t count against your lifetime gift and estate tax exemption.

For example, let’s say you have three grandchildren and want to gift each of them before the end of 2024. You could give each grandchild $18,000—$54,000 total—and there’s no need to file a gift tax return. If you and your spouse want to gift jointly, each of you could give $18,000 per grandchild, for a total of $36,000 each.

What Happens When You Exceed the Annual Limit?

If you decide to give someone more than $18,000 in a single year, you’ll need to file a gift tax return (IRS Form 709). But don’t worry—this doesn’t necessarily mean you’ll owe any taxes. You can apply the amount over $18,000 toward your lifetime estate and gift tax exemption, which in 2024 is set at $12.92 million. This lifetime exemption lets you make larger gifts without triggering immediate taxes, as long as you stay within this cumulative limit.

Do Gift Recipients Have to Pay Taxes?

The great news is that gift recipients don’t have to report the gift as income or pay taxes on it. As the giver, you’re responsible for any necessary gift tax reporting if you go over the annual limit, but your loved ones won’t have to deal with additional tax filings. Gifts are considered non-taxable for the person receiving them, so you can rest assured that they can enjoy your gift without extra tax concerns.

Non-Taxable Gifts Beyond Cash

Don’t forget, there are other ways to provide financial help without impacting your gift tax exemption. For example, you can pay tuition directly to a school or cover medical bills by paying the provider directly. These payments aren’t subject to gift tax and don’t count toward your annual or lifetime gift tax limits.

The Value of Gifting

Gifting is more than just a way to reduce the size of your taxable estate. It’s an opportunity to see the positive impact of your wealth on your loved ones—whether it’s helping with tuition, a home down payment, or simply providing financial peace of mind. If you’re interested in how gifting can fit into your overall financial plan, feel free to reach out. Together, we can ensure that your generosity supports your family and aligns with your estate planning goals.

Cetera Advisor Network LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services though their independent outside business. This information is not intended as tax or legal advice.