‘Tis the Season … for Strategic Giving
December 18, 2024
By Lynn Gifford Bria, Esq.
Principal Wealth Advisor and Senior Fiduciary Officer
Washington Trust Wealth Management
The holiday season is the perfect time to share your wealth with loved ones—and stay off the IRS’ naughty list while doing it. Knowing and understanding annual exclusion gifting will allow you to transfer wealth to family while minimizing your tax burden.
Gift Taxes: Common Misconceptions
There are some common misconceptions around giving and receiving gifts and the taxes triggered by those gifts. First, a gift recipient does not pay federal tax on gifts (income tax or gift tax) and is not required to report gifts to the IRS (unless it comes from a foreign source).i
The tax system associated with gifts (the Unified Gift and Estate Taxii) is separate from the income tax system. For gifts over the annual exclusion amount, it is the gift giver, not the recipient, responsible for any gift tax, which is typically not applied until the calculation of the estate tax. (Don’t forget that states have their own tax exemption regulations separate from federal tax.)
An important note: the gift tax applies to any gift, not just money, with some exceptions (such as paying someone’s tuition or medical expenses). So gifting a car worth $15,000 counts against your gift tax exclusion the same as gifting $15,000 in cash.
Learn more about gift taxes and transferring wealth.
Annual Exclusions and Lifetime Exemptions
By staying within the annual exclusion limit, you can avoid filing a gift tax return (IRS Form 709), which reports taxable gifts that you make to others during your lifetime and counts against your lifetime federal gift tax exclusion.
In 2024, you can give up to $18,000 per recipient ($36,000 for a couple gifting jointly) without triggering gift tax or using any of your lifetime gift and estate tax exemption.iii For example, a married couple could give $36,000 to each of their children and grandchildren (or anyone else, for that matter) each year without counting against their lifetime federal exemption.
That lifetime exemption stands at $13.61 million per person in 2024, so most Americans will never have to pay a gift tax. (If the Tax Cuts and Jobs Act of 2017 is allowed to expire on January 1, 2026, the lifetime exclusion amount will revert to the 2017 level adjusted for inflation, estimated to be close to $6.4 million.)iv
Learn more about your annual and lifetime exemptions.
Timing matters: To qualify as a 2024 gift, the transfer must be completed by December 31. This includes ensuring checks are cashed or transfers are posted.
Wrapping Up Your Charitable Giving
If you’re considering supporting charities this holiday season, consider giving low-basis stock. When you donate appreciated stock, you won’t pay capital gains tax on the appreciation, so the charity receives the full market value of the stock. And if you itemize deductions, you can claim a charitable deduction for the fair market value of the stock.
Due to tax laws, low basis stock is best gifted to charities, not family. Qualified charities can sell your low basis or other capital assets without any tax liability, but your family cannot.
Remember that just like family gifting, charitable gifts must be completed by December 31 to qualify for 2024 tax benefits.
Washington Trust Wealth Management Can Help
Your Washington Trust wealth advisor can help you plan your gifts to ensure your gifting strategy takes full advantage of annual exclusions and aligns with your financial and life goals, helping you make the most of this holiday season.
Connect with a wealth advisor
No matter where you are in life, we can help. Get started with one of our experts today. Contact us at 800-582-1076 or submit an online form.
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