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Sound Advice: May 14, 2025

Gifting Considerations to Reduce Taxes 

Gifting can be a powerful tool for reducing taxes, particularly in the context of estate planning and wealth transfer.  Below are the essential aspects to understand about gifting and its tax implications:

Annual Gift Tax Exclusion

  • For 2025, the annual gift tax exclusion is $19,000 per recipient.  This means you can gift up to this amount to any number of individuals without triggering a gift tax or needing to report it to the IRS.
  • Married couples can combine their exclusions, allowing them to gift up to $38,000 per recipient annually through "gift splitting".

Lifetime Gift and Estate Tax Exemption

  • The lifetime federal estate and gift tax exemption for 2025 is $13.99 million per individual or $27.98 million per couple.
  • Gifts exceeding the annual exclusion amount reduce your lifetime exemption, which also applies to your estate after death.

Tax-Free Gifting Opportunities

Certain types of gifts are exempt from both annual and lifetime limits:

  • Direct payments for medical or educational expenses:  Payments made directly to providers for someone's medical bills or tuition are not subject to gift tax.
  • Gifts to IRS-approved charities: These are considered charitable donations rather than taxable gifts.
  • Gifts between spouses: Unlimited tax-free gifting is allowed between spouses who are U.S. citizens.

Benefits of Gifting

  1. Reduce Taxable Estate: Gifting assets during your lifetime reduces the size of your taxable estate, potentially lowering estate taxes upon death.
  2. Avoid Capital Gains Taxes: By gifting appreciated assets (e.g., stocks or real estate) to someone in a lower tax bracket, you can avoid paying higher capital gains taxes if those assets were sold in your own bracket.
  3. Super-Funding 529 Plans: You can contribute up to five years' worth of annual exclusions (e.g., $95,000 in 2025) as a lump sum into a 529 education savings plan without incurring gift tax.

Reporting Requirements

  • If you exceed the annual exclusion amount for any recipient, you must file IRS Form 709 (Gift Tax Return).  This does not mean you owe taxes; the excess amount, however, does reduce your lifetime exemption.

Planning Considerations

  • The current elevated lifetime exemption is set to expire at the end of 2025, potentially dropping to pre-2017 levels (around $7 million per individual). This makes early planning crucial.
  • State laws may differ from federal laws regarding gift and estate taxes, so it's important to consult with a tax professional for proper advice.

By leveraging these strategies effectively, you can minimize tax liabilities while supporting loved ones and preserving wealth for future generations.

N. Russell Wayne

Weston, CT  06883

203-895-8877

www.soundasset.blogspot.com

 

 

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