Gifting is a powerful way to share your wealth, values, and legacy with the people and causes that matter most. Whether it’s supporting a loved one’s education, contributing to a favorite charity, or planning a thoughtful gesture for the holidays, giving can have a lasting impact. Charitable donations, in particular, can provide significant financial benefits, such as tax deductions, reductions in taxable income, or decreases in taxable estate value. These benefits vary depending on factors like your age, the amount you give, and the method of giving.
Gifting to family members is a meaningful way to share your success, support loved ones, and create lasting connections across generations. Whether you’re helping fund a child’s education, contributing to a retirement plan, or simply passing on a cherished family tradition, strategic tax planning can make your generosity even more impactful.
For 2024, the annual gift tax exclusion is $18,000 per recipient. Gifts below this amount do not need to be reported on your tax return, and neither you nor the recipient will incur tax liability. Married couples can combine their exclusions to gift up to $36,000 per recipient. If gifts exceed the annual exclusion, you must file Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. However, this does not necessarily mean taxes are due; excess amounts count against your lifetime gift and estate tax exemption, which is $13.61 million for 2024. Additionally, since the exclusion applies per person, a married couple could gift up to $72,000 to another married couple.
The gift of education is one of the most impactful ways to support a loved one. According to IRS rules, tuition paid directly to an institution is exempt from gift tax and does not count against the annual gift tax exclusion. This allows grandparents to pay tuition directly without triggering gift tax implications. Furthermore, if the student is claimed as a dependent, their parents may be eligible for education tax credits, such as the American Opportunity Tax Credit (AOTC), which can reduce the family’s tax liability by up to $2,500 per eligible student. Another educational gifting option is contributing to a child’s 529 Plan. Individuals can gift up to $90,000 in 2024 by electing to spread the amount exceeding $18,000 over five years. Form 709 must be filed for each of the five years to report this election.
If your gift recipient is beyond college age, consider providing funds to help them contribute to their retirement account, such as a traditional or Roth IRA. For 2024, the contribution limit is $7,000—or $8,000 for individuals aged 50 or older—but contributions cannot exceed the account owner’s earned income. This kind of gift not only encourages long-term savings but can also provide immediate tax benefits. Traditional IRA contributions may be tax-deductible, reducing the recipient’s taxable income for the year. While Roth IRA contributions don’t offer immediate tax advantages, distributions in retirement are tax-free. For younger recipients, decades of compounding growth could result in a sizeable nest egg.
Finally, if your spouse is self-employed, gifting them business-related items like a new laptop or office equipment can be a tax-savvy move. Such items may qualify as deductible business expenses on their tax return. To ensure compliance, the gifted items must be used for business purposes, and proper documentation should be maintained to substantiate the deduction.
If you have questions or need assistance planning your gifts, the experts at Henssler Financial will be glad to help:
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- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the November 23, 2024 “Henssler Money Talks” episode.
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