We love givers! Few things excite our team like helping think through how you can use wealth to make the biggest impact possible on the people and causes you care about. So, a discussion of giving too much away might initially seem strange. But, if you’re not careful, you might inadvertently end up with a tax bill on funds you give away. This is called the gift tax and the IRS expects you to know it. After all, they’ve generously listed it on their website for you to read! So, how does it work?

What is the gift tax? The gift tax is essentially a tax on gifts above an IRS threshold. It’s intended to prevent you from giving away assets while alive to avoid estate taxes you might otherwise owe when you pass away. In 2024, the first $18,000 of value you give to each person is tax-free. Spouses each have their own gift limit, so, as an example, a married couple with three kids could each give $18,000 to each of child for a total of $108,000 without any concern.

It’s important to note that this applies to cash or non-cash gifts, including significantly discounted sales. So, in case you were considering selling your $500,000 home to your child for $250,000, the IRS will count that $250,000 in discounted value as a gift.

What about gifts to my spouse? The unlimited marital deduction means that gifts between spouses never incur the gift tax, except in the case of a non-U.S. citizen spouse which, in 2024, has a limit of $185,000 per year.

Exemptions for education and healthcare. One notable exception is funds given for education tuition or healthcare expenses. These aren’t subject to gift taxes if paid directly to the institution. This means you could pay for your granddaughter’s $30,000 tuition expense directly to her school, or pay a $20,000 medical bill directly to the hospital that treated her without dipping into the $18,000 annual limit.

The Lifetime Gift Tax Exemption. So, what happens if you give more than the annual limit? You’re not immediately in trouble…you still have a lifetime gift tax exemption that would go into effect, however you would need to report it as part of your tax filing come next April. In 2024, that lifetime exemption is set at $13.61 million so you have some wiggle room.

Questions? We’re here to help! These are just a few of the issues surrounding the topic of strategic giving and, as we’ve mentioned before, it’s one of our favorite areas of study!

Josh Whelan

Partner, Financial Advisor

About the Author

Josh sees his profession as a calling, not just a career. His motive for pursing financial planning was very personal. While working on a degree in marriage and family counseling, Josh’s father was diagnosed with multiple sclerosis. Josh decided then and there to change career paths to help his family prepare for an uncertain financial future. Financial planning became his path to serving others.

The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.

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