By: Andrew T. Gardener, CFP®
Annual Gift Tax Exclusion
Opportunity
If you’ve ever thought about helping adult family members by purchasing a car for them, contributing to a home down payment, or to a college savings fund, like a 529 plan, you might want to consider doing that before year-end.
Rules to be Aware of
Every year you (and your spouse, if you are married) are allowed to make gifts, up to the annual exclusion amount, completely tax-free. That is both income tax-free and gift and estate tax-free.
The annual exclusion amount this year is $17,000 and that amount is indexed to inflation, so it is likely to go up most years in $1000 increments. The IRS has already announced that the annual exclusion in 2024 will be $18,000.
Why is timing important? The annual exclusion is a “use it or lose it” opportunity. For example, if you don’t use the $17,000 exclusion this year, you won’t be able to combine them next year for a $35,000 exclusion. Whatever is not used this year may not be used in the future.
To be eligible, the gifts must be complete, voluntary, and of “present interest,” meaning not a future interest or conditional gift.
Benefit
The gift exclusion amount is per person – per donor and per donee. For example, a couple may make cumulative gifts to their three children of up to $102,000 this year. That’s money that may benefit those they wish to help and, at the same time, remove or reduce potential estate tax liabilities for donors with a substantial net worth.
Those same gifting rules also apply to grandchildren. Interestingly, those gifting exemptions may also be made to people you are not even related to, so the potential is unlimited.
Many successful families include gifting strategies in their annual planning. If you don’t already have a gifting strategy in place, Tanglewood Legacy Advisors is happy to help you decide which strategy is best for you.
