New Year, New Gifting

Is it too far along to say New Year, New Me?

Perhaps, but it’s not too far along to remind you gifting can play an integral part in your financial plan. For 2024, individuals can make nontaxable gifts up to $18,000, also known as the annual exclusion, without triggering gift tax. The annual exclusion amount is the maximum value of gifts that an individual can give to another person in a calendar year without incurring any tax liability. This means that you can give up to $18,000 to as many individuals as you like without facing gift tax consequences.

Gifting can serve the dual purpose of helping you decrease your tax liability, while giving you the opportunity to see your beneficiaries enjoy their gift. Certain states like Pennsylvania have an inheritance tax, which is incurred when assets are transferred at death. Gifting helps you avoid this tax by gifting to your beneficiaries tax free what they would have received through an inheritance.

Gifting as part of a financial plan is not simply about the $18,000 annual exclusion. There are other components that are considered as part of your plan. These are explained below.

Lifetime Exemption:

In addition to the annual exclusion, there is the lifetime gift tax exemption. This exemption allows individuals to make gifts above the annual exclusion amount without paying gift tax, up to a certain lifetime limit. For 2024, the lifetime gift tax exemption is $13.61 million. Gifts that exceed the annual exclusion contribute towards this lifetime exemption.

Gifts for Education and Medical Expenses:

Certain gifts made for specific purposes are nontaxable. Payments made directly to educational or medical institutions for someone else's tuition or medical expenses are generally excluded from gift tax calculations. This applies regardless of the amount and does not count toward the annual exclusion or lifetime exemption.

Spousal Exclusion:

Gifts between spouses who are U.S. citizens are generally unlimited and not subject to gift tax. However, there are rules and limitations for gifts to non-citizen spouses.

Gift Splitting:

Married couples can choose to "split" their gifts, allowing them to combine their annual exclusion amounts for joint gifts. This effectively doubles the amount that can be given to a single individual without incurring gift tax.

It's important to note that tax laws can change, and exemptions and exclusions typically increase year over year. Please feel free to reach out to your financial advisor with any questions you might have.