How Much Money Can You Gift Each Year Without Paying Taxes?

The question of How Much Money Can You Gift Each Year is a common concern for individuals looking to provide financial support to loved ones while minimizing tax implications. At money-central.com, we’re here to provide clarity on gift tax rules, ensuring you can confidently navigate these financial decisions, and learn about estate planning as well. Our insights help you manage financial gifting responsibly.

1. What is the Annual Gift Tax Exclusion for 2024 and 2025?

For 2024, the annual gift tax exclusion is $18,000 per individual, meaning you can gift up to this amount to any number of people without it counting toward your lifetime gift tax exclusion. In 2025, this amount increases to $19,000. This exclusion allows individuals to transfer wealth without incurring gift tax, provided the gifts do not exceed the annual limit.

Understanding the Annual Gift Tax Exclusion

The annual gift tax exclusion is a crucial aspect of estate planning and wealth transfer. It allows individuals to reduce the size of their taxable estate over time by making annual gifts to family members and other beneficiaries. Here’s a detailed breakdown:

• Definition: The annual gift tax exclusion is the amount you can give to any one person during a calendar year without having to report the gift to the Internal Revenue Service (IRS).
• Purpose: The primary purpose is to allow individuals to make small gifts without the burden of filing a gift tax return, simplifying the tax process for both the giver and the receiver.
• Adjustments Over Time: The IRS typically adjusts the annual exclusion amount periodically to account for inflation. For example, the amount increased from $16,000 in 2022 to $17,000 in 2023, and further to $18,000 in 2024.
• Who Benefits?: This exclusion benefits individuals who want to help family members with expenses like education, medical bills, or down payments on a home. It also benefits those looking to reduce their estate size to minimize estate taxes.

How the Annual Gift Tax Exclusion Works

Understanding the mechanics of the annual gift tax exclusion can help you strategically plan your gifting:

• Per-Person Limit: The exclusion applies per person. This means you can give $18,000 to as many individuals as you like in 2024 without impacting your lifetime exclusion.
• No Cumulative Effect on Recipient: The recipient of the gift does not need to report the gift as income, and the gift does not count against any lifetime limit for the recipient.
• Married Couples: Married couples can combine their annual exclusions, a strategy known as gift splitting. For instance, in 2024, a married couple can jointly gift $36,000 to one person without needing to report it.
• Reporting Requirements: If you gift more than the annual exclusion to any one person, you must file a gift tax return (Form 709) to report the gift. However, this does not necessarily mean you will owe gift tax. The excess amount simply reduces your lifetime gift and estate tax exemption.
• Lifetime Exclusion: The excess gift amount is counted against your lifetime gift and estate tax exemption, which is $13.61 million in 2024. You only owe gift taxes once you have exceeded this lifetime exclusion.

Examples of Using the Annual Gift Tax Exclusion

To illustrate how the annual gift tax exclusion works, consider these examples:

1. Helping with Education:
   • John wants to help his niece pay for college. In 2024, he gifts her $18,000. This gift is entirely covered by the annual exclusion, so John doesn’t need to report it, and it doesn’t affect his lifetime exclusion.
2. Assisting with Medical Expenses:
   • Mary’s elderly mother needs medical care. Mary gifts her $18,000 in 2024 to help with the expenses. Again, this falls under the annual exclusion, and Mary doesn’t need to report it.
3. Down Payment on a Home:
   • Tom and his wife decide to help their son with a down payment on a house. They each gift him $18,000 in 2024, totaling $36,000. As a married couple, they can combine their exclusions, so this gift doesn’t need to be reported.
4. Exceeding the Annual Exclusion:
   • Sarah gifts her daughter $25,000 in 2024. She exceeds the annual exclusion by $7,000. Sarah must file a gift tax return (Form 709) to report the $7,000 excess. However, she won’t owe any gift tax unless she has already exceeded her lifetime gift and estate tax exemption of $13.61 million.

Strategies to Maximize the Annual Gift Tax Exclusion

To make the most of the annual gift tax exclusion, consider these strategies:

• Consistent Annual Gifting: Make it a habit to gift up to the annual exclusion amount each year to gradually reduce your taxable estate.
• Gift Splitting: If you are married, take advantage of gift splitting to double the amount you can gift without reporting.
• Direct Payments: Pay medical or educational expenses directly to the institution. These payments do not count as gifts and do not affect your annual or lifetime exclusions.
• Document Everything: Keep detailed records of all gifts, including dates, amounts, and recipients. This documentation will be helpful if you ever need to file a gift tax return.

By understanding and utilizing the annual gift tax exclusion effectively, you can provide financial assistance to your loved ones while minimizing potential tax implications. For more detailed advice and personalized strategies, visit money-central.com.

2. What is the Lifetime Gift Tax Exclusion, and How Does it Work?

As of 2024, the lifetime gift tax exclusion is $13.61 million per individual. This is the total amount you can gift during your lifetime (above the annual exclusion) without owing federal gift tax. This exclusion is unified with the estate tax exclusion, meaning amounts used during your lifetime reduce the amount available upon death.

Delving into the Lifetime Gift Tax Exclusion

The lifetime gift tax exclusion is a critical element in estate planning, allowing individuals to transfer a significant amount of wealth during their lifetime or at death without incurring federal gift or estate taxes. Let’s explore this concept in detail:

• Definition: The lifetime gift tax exclusion (also known as the lifetime gift and estate tax exemption) is the total amount an individual can gift during their lifetime and/or leave as part of their estate at death without being subject to federal gift or estate taxes.
• Unified System: The U.S. tax system unifies the gift and estate taxes, meaning that the same lifetime exclusion applies to both. Any portion of the exclusion used during your lifetime reduces the amount available to your estate at death.
• Purpose: The primary purpose of the lifetime exclusion is to allow wealthy individuals to transfer substantial assets to their heirs or other beneficiaries without incurring significant tax liabilities, facilitating the transfer of wealth across generations.

How the Lifetime Gift Tax Exclusion Works

Understanding the mechanics of the lifetime gift tax exclusion is crucial for effective estate planning:

• Current Exclusion Amount: As of 2024, the lifetime gift and estate tax exclusion is $13.61 million per individual. This amount is periodically adjusted for inflation.
• Portability for Married Couples: Married couples can effectively double their lifetime exclusion through a concept called “portability.” This allows the surviving spouse to use any unused portion of the deceased spouse’s exclusion. For example, if one spouse uses only $5 million of their exclusion, the surviving spouse can add the remaining $8.61 million to their own exclusion, resulting in a total exclusion of $22.22 million (in 2024).
• Using the Exclusion: Whenever you make a gift that exceeds the annual gift tax exclusion, the excess amount counts against your lifetime exclusion. You must report these gifts on Form 709 (Gift Tax Return), but you don’t pay gift tax until you’ve used up your entire lifetime exclusion.
• Estate Tax Implications: At death, any remaining lifetime exclusion can be used to offset estate taxes. The estate tax is levied on the value of your assets (cash, real estate, stocks, etc.) exceeding the exclusion amount.

Examples of Using the Lifetime Gift Tax Exclusion

Consider these examples to illustrate how the lifetime gift tax exclusion is applied:

1. Gifting Over Several Years:
   • In 2024, Jane gifts her son $500,000 to help him start a business. Since the annual exclusion is $18,000, $482,000 ($500,000 – $18,000) counts against her lifetime exclusion.
   • Over the next few years, Jane continues to make gifts exceeding the annual exclusion, eventually using up $3 million of her lifetime exclusion.
   • When Jane passes away, her estate can exclude up to $10.61 million ($13.61 million – $3 million) from estate taxes.
2. Using Portability:
   • Robert passes away in 2024, having used only $4 million of his lifetime exclusion. His remaining exclusion of $9.61 million can be ported to his wife, Linda.
   • Linda now has her own $13.61 million exclusion plus Robert’s unused $9.61 million, giving her a total exclusion of $23.22 million.
3. Large One-Time Gift:
   • In 2024, Michael decides to make a large gift of $2 million to a charitable foundation. After applying the annual exclusion of $18,000, $1.982 million counts against his lifetime exclusion.
   • Michael still has $11.628 million ($13.61 million – $1.982 million) of his lifetime exclusion available for future gifts or to offset estate taxes at his death.

Strategies to Maximize the Lifetime Gift Tax Exclusion

To make the most of the lifetime gift tax exclusion, consider these strategies:

• Start Early: Begin making gifts early in life to take advantage of the annual exclusion and gradually reduce your taxable estate.
• Use Annual Exclusions Wisely: Maximize your annual exclusions by gifting up to the limit to multiple beneficiaries each year.
• Consider Irrevocable Life Insurance Trusts (ILITs): These trusts can hold life insurance policies, keeping the death benefits out of your taxable estate while still providing financial support to your heirs.
• Plan for Portability: If you are married, ensure your estate plan includes provisions for portability to maximize the use of both spouses’ exclusions.
• Consult with Professionals: Work with a qualified estate planning attorney and financial advisor to develop a comprehensive strategy tailored to your specific circumstances.

By understanding and effectively utilizing the lifetime gift tax exclusion, you can strategically transfer wealth, minimize tax liabilities, and ensure your assets are distributed according to your wishes. For more detailed guidance and personalized advice, visit money-central.com.

Diagram illustrating the concept of lifetime gift tax exclusion

3. What Happens if I Exceed the Annual Gift Tax Exclusion?

If you gift more than $18,000 to one person in 2024, you must report it to the IRS on Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. However, you only pay gift tax if the total of your taxable gifts over your lifetime exceeds $13.61 million. The excess amount will reduce your lifetime gift tax exclusion.

Navigating the Consequences of Exceeding the Annual Gift Tax Exclusion

Exceeding the annual gift tax exclusion requires specific actions and can have implications for your lifetime gift and estate tax planning. Here’s a detailed explanation of what happens if you exceed the annual exclusion:

• Reporting Requirement:

  • If you gift more than the annual gift tax exclusion amount (e.g., $18,000 in 2024) to any one person during the calendar year, you are required to report the gift to the IRS.
  • This is done by filing Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.

• Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return:

  • Form 709 is used to report:
    • Gifts that exceed the annual exclusion amount.
    • Gifts of future interests (gifts that the recipient cannot use, possess, or enjoy until some time in the future).
    • Gifts to trusts or other entities.
    • Generation-skipping transfer (GST) taxes.

• Impact on Lifetime Exclusion:

  • The amount exceeding the annual exclusion is counted against your lifetime gift and estate tax exclusion.
  • The lifetime exclusion is the total amount you can gift during your lifetime and/or leave in your estate without being subject to federal gift or estate taxes (e.g., $13.61 million in 2024).

• No Immediate Tax Liability:

  • Exceeding the annual exclusion does not necessarily mean you will owe gift tax immediately.
  • Gift tax is only due when the total of your taxable gifts (those exceeding the annual exclusion) over your lifetime exceeds the lifetime gift and estate tax exclusion amount.

Steps to Take When Exceeding the Annual Gift Tax Exclusion

Here are the steps you should take if you exceed the annual gift tax exclusion:

1. Track Your Gifts:

   • Keep detailed records of all gifts made during the year, including the date, amount, and recipient of each gift.

2. Determine if You Need to File Form 709:

   • If you made gifts exceeding the annual exclusion amount to any one person, you will likely need to file Form 709.
   • Also, consider if any of your gifts were of future interests or to trusts, as these may also require filing Form 709.

3. Complete Form 709:

   • Fill out Form 709 accurately and completely. This form requires you to:
     • List all gifts made during the year.
     • Calculate the taxable amount of the gifts (the amount exceeding the annual exclusion).
     • Report any prior taxable gifts.
     • Calculate the amount of lifetime exclusion used.

4. File Form 709 by the Deadline:

   • Form 709 is typically due on April 15th of the year following the year in which you made the gifts.
   • If you have filed for an extension on your individual income tax return (Form 1040), this automatically extends the deadline for filing Form 709 as well.

5. Consult with a Tax Professional:

   • Given the complexities of gift tax laws, it is often beneficial to consult with a qualified tax professional or estate planning attorney.
   • They can help ensure you are accurately reporting your gifts and making the most of your lifetime exclusion.

Example Scenario

• Scenario:
  • In 2024, John gifts his daughter $50,000 to help with the purchase of a new home.
• Analysis:
  • The annual gift tax exclusion is $18,000.
  • John exceeded the annual exclusion by $32,000 ($50,000 – $18,000).
• Actions:
  • John must file Form 709 to report the gift.
  • The $32,000 will be counted against his lifetime gift and estate tax exclusion of $13.61 million.
  • John will not owe gift tax unless he has already used up his entire lifetime exclusion.

Strategies to Consider

• Use Annual Exclusion Wisely:

  • Make it a practice to gift up to the annual exclusion amount each year to multiple beneficiaries to reduce your taxable estate over time.

• Consider Gift Splitting:

  • If married, consider gift splitting with your spouse. This allows you to combine your annual exclusions and gift twice the amount without exceeding the annual exclusion threshold.

• Plan Strategically:

  • Work with a financial advisor to develop a gifting strategy that aligns with your overall estate planning goals.

By understanding the steps to take when exceeding the annual gift tax exclusion, you can ensure compliance with tax laws and make informed decisions about your gifting strategy. For more detailed advice and personalized planning, visit money-central.com.

4. Who Pays the Gift Tax: The Giver or the Receiver?

The giver is responsible for paying any gift tax owed, not the recipient. If the giver does not pay, the IRS can, in some situations, attempt to collect from the recipient, but this is rare. It’s the donor’s responsibility to file the gift tax return (Form 709) if the gift exceeds the annual exclusion.

Clarifying the Responsibility for Gift Tax Payment

Understanding who is responsible for paying the gift tax is essential for both the giver (donor) and the receiver (recipient) of a gift. Here’s a breakdown of the rules and potential scenarios:

• Primary Responsibility of the Giver (Donor):

  • The gift tax is primarily the responsibility of the person making the gift, known as the donor.
  • The donor is obligated to report the gift on Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) if the gift exceeds the annual gift tax exclusion (e.g., $18,000 in 2024).
  • If the total taxable gifts (gifts exceeding the annual exclusion) exceed the donor’s lifetime gift and estate tax exclusion, the donor is responsible for paying the gift tax.

• Tax Implications for the Receiver (Recipient):

  • The recipient of a gift is generally not responsible for paying the gift tax.
  • Gifts are typically not considered income for the recipient, so they do not need to report the gift on their income tax return.

• IRS Recourse in Case of Non-Payment by the Giver:

  • In rare cases where the donor does not pay the gift tax, the IRS can attempt to collect the tax from the recipient.
  • This is typically a last resort for the IRS, and they would first pursue all avenues to collect from the donor.

Legal and Practical Implications

• Legal Framework:

  • The legal obligation for paying the gift tax falls squarely on the donor, as outlined in the Internal Revenue Code.
  • The IRS has the authority to pursue the donor for any unpaid gift taxes.

• Practical Considerations:

  • Most donors who make gifts large enough to be subject to the gift tax are financially capable of paying the tax.
  • It is advisable for donors to consult with a tax professional or estate planning attorney to understand their obligations and plan accordingly.

Situations Where the IRS Might Pursue the Recipient

While it is uncommon, there are specific situations in which the IRS might attempt to collect gift tax from the recipient:

1. Donor’s Insolvency:

   • If the donor becomes insolvent (unable to pay their debts) and has not paid the gift tax, the IRS may seek payment from the recipient.

2. Donor’s Death:

   • If the donor dies without paying the gift tax, the IRS can make a claim against the donor’s estate. If the estate does not have sufficient assets to cover the tax liability, the IRS may pursue the recipient.

3. Agreement Between Donor and Recipient:

   • In some cases, the donor and recipient may have an agreement that the recipient will pay the gift tax. While this is possible, it is essential to document the agreement clearly to avoid confusion and potential legal issues.

Recommendations for Donors and Recipients

• For Donors:

  • Understand your gift tax obligations and plan accordingly.
  • Keep accurate records of all gifts made, including the date, amount, and recipient.
  • File Form 709 if you exceed the annual gift tax exclusion.
  • Consult with a tax professional or estate planning attorney to ensure compliance and optimize your gifting strategy.

• For Recipients:

  • Be aware that while you are generally not responsible for paying the gift tax, there are rare situations where the IRS may seek payment from you.
  • If you receive a large gift, consider discussing the tax implications with the donor and seeking independent legal or financial advice.

Example Scenario

• Scenario:
  • In 2024, Sarah gifts her son $200,000 to help him purchase a home.
• Analysis:
  • The annual gift tax exclusion is $18,000.
  • Sarah’s gift exceeds the annual exclusion by $182,000.
• Responsibility:
  • Sarah is responsible for reporting the gift on Form 709.
  • If Sarah’s total taxable gifts exceed her lifetime gift and estate tax exclusion, she is responsible for paying the gift tax.
  • The son is not responsible for paying the gift tax.
• IRS Recourse:
  • If Sarah does not pay the gift tax, the IRS will primarily pursue Sarah for payment. Only in rare circumstances, such as Sarah’s insolvency, might the IRS attempt to collect from the son.

Final Thoughts

Understanding the responsibility for gift tax payment is crucial for effective estate planning and compliance with tax laws. Donors should be aware of their obligations and plan accordingly, while recipients should be informed of the rare situations in which they might be held liable. For more detailed guidance and personalized advice, visit money-central.com.

5. Do I Need to Report a Gift on My Taxes as a Recipient?

No, as a recipient of a gift, you generally do not need to report it on your taxes. Gifts are not considered taxable income for the recipient. The responsibility to report and potentially pay taxes on a gift falls on the giver if the gift exceeds the annual exclusion amount.

Understanding Reporting Obligations for Gift Recipients

When you receive a gift, it’s natural to wonder whether you need to report it on your tax return. Here’s a comprehensive explanation of the rules and considerations for gift recipients:

• General Rule: Gifts Are Not Taxable Income:

  • In the United States, gifts are generally not considered taxable income for the recipient. This means you do not need to include the value of the gift in your gross income when filing your federal income tax return (Form 1040).
  • This rule applies regardless of the size of the gift. Whether you receive a small gift or a substantial sum of money, it is typically not taxable to you.

• No Requirement to Report Gifts on Your Tax Return:

  • Because gifts are not considered taxable income, you do not need to report them on your tax return. There is no specific form or section on Form 1040 where you would report the receipt of a gift.

• The Responsibility Lies with the Giver (Donor):

  • The responsibility to report and potentially pay taxes on a gift falls on the person making the gift (the donor), not the recipient.
  • If the donor gives a gift that exceeds the annual gift tax exclusion amount (e.g., $18,000 in 2024), they are required to report the gift to the IRS on Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return).

Exceptions and Special Cases

While the general rule is that gifts are not taxable to the recipient, there are a few exceptions and special cases to be aware of:

1. Gifts That Produce Income:

   • If you receive a gift that later produces income, the income may be taxable. For example, if you receive a gift of stock, any dividends or capital gains you earn from the stock would be taxable.
   • In this case, you would report the income on your tax return, but not the original gift itself.

2. Gifts from Foreign Persons:

   • If you receive a gift from a foreign person (i.e., someone who is not a U.S. citizen, U.S. resident alien, or U.S. entity), you may need to report it to the IRS if the gift exceeds certain thresholds.
   • Specifically, you must report gifts from a foreign person if the total value of gifts received from that person during the tax year exceeds $100,000.
   • This reporting is done on Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts).

3. Gifts Disguised as Income:

   • If a gift is actually a disguised form of income, it may be taxable. For example, if you receive a “gift” from your employer, but it is actually compensation for your services, it would be considered taxable income.
   • In this case, the payment would be reported on Form W-2 (Wage and Tax Statement) and subject to income tax and payroll taxes.

Recommendations for Gift Recipients

• Keep Records of Significant Gifts:

  • Although you don’t need to report gifts on your tax return, it’s a good idea to keep records of significant gifts you receive. This can be helpful if you ever need to establish the basis of an asset you received as a gift or if you have questions about the gift in the future.

• Be Aware of Potential Income Implications:

  • If you receive a gift that later produces income, be sure to report the income on your tax return.

• Report Gifts from Foreign Persons if Required:

  • If you receive gifts from a foreign person that exceed $100,000 in a tax year, be sure to report them on Form 3520.

• Consult with a Tax Professional if Needed:

  • If you have any questions or concerns about the tax implications of a gift you received, consult with a qualified tax professional or financial advisor.

Example Scenarios

1. Cash Gift from a Relative:

   • In 2024, Maria receives a cash gift of $20,000 from her parents to help with a down payment on a house.
   • Maria does not need to report this gift on her tax return. Her parents may need to report the gift on Form 709 if they exceeded the annual exclusion amount.

2. Gift of Stock:

   • David receives a gift of stock from his grandfather. The stock is worth $50,000 at the time of the gift.
   • David does not need to report the gift of stock on his tax return. However, if he later sells the stock for a profit, he will need to report the capital gains on his tax return.

3. Gift from a Foreign Person:

   • Lisa, a U.S. resident, receives a gift of $150,000 from her uncle who lives in another country.
   • Lisa must report this gift to the IRS on Form 3520 because the value of the gift exceeds $100,000.

Final Thoughts

As a recipient of a gift, you generally do not need to report it on your tax return. However, it’s essential to be aware of the exceptions and special cases where reporting may be required, such as gifts that produce income or gifts from foreign persons. By understanding these rules, you can ensure compliance with tax laws and avoid potential issues. For more detailed guidance and personalized advice, visit money-central.com.

6. How Can Married Couples Utilize Gift Splitting to Maximize Their Annual Exclusion?

Married couples can use gift splitting to treat a gift as if each spouse gave half, effectively doubling the annual gift tax exclusion. For example, in 2024, a couple can gift $36,000 to one person without either spouse exceeding the annual exclusion, provided they both consent to gift splitting.

Leveraging Gift Splitting: A Comprehensive Guide for Married Couples

Gift splitting is a powerful tax strategy that allows married couples to maximize their annual gift tax exclusion and efficiently transfer wealth. Here’s a detailed explanation of how it works and how to utilize it effectively:

• Definition of Gift Splitting:

  • Gift splitting is a provision in the U.S. tax law that allows a married couple to treat a gift made by one spouse as if each spouse made half of the gift.
  • This effectively doubles the annual gift tax exclusion for the couple, allowing them to give more to a recipient without triggering gift tax consequences.

• Requirements for Gift Splitting:

  • The couple must be married at the time of the gift.
  • Both spouses must be U.S. citizens or U.S. residents.
  • Both spouses must consent to gift splitting. This is typically done by signing Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return).
  • If one spouse gifts a future interest, both spouses are ineligible for gift splitting.
  • The couple must remain married for the rest of the year in which the gift was made.

• How Gift Splitting Works:

  • When a married couple elects to use gift splitting, a gift made by one spouse is treated as if each spouse made half of the gift.
  • This means that each spouse can use their annual gift tax exclusion to offset half of the gift.
  • The effect is that the couple can give up to twice the annual exclusion amount to one person without exceeding the annual exclusion limit.

Benefits of Gift Splitting

Gift splitting offers several key benefits for married couples:

1. Doubles the Annual Exclusion:

   • The most significant benefit is that gift splitting doubles the annual gift tax exclusion. For example, in 2024, the annual exclusion is $18,000 per person. A married couple using gift splitting can give $36,000 to one person without needing to report the gift.

2. Reduces the Risk of Using Lifetime Exclusion:

   • By maximizing the annual exclusion, gift splitting reduces the risk of using the lifetime gift and estate tax exclusion. This is particularly useful for couples who plan to make substantial gifts over time.

3. Simplifies Estate Planning:

   • Gift splitting can simplify estate planning by allowing couples to transfer wealth more efficiently. It helps reduce the size of the taxable estate, potentially lowering estate taxes in the future.

How to Implement Gift Splitting

To implement gift splitting, follow these steps:

1. Determine Eligibility:

   • Ensure that you and your spouse meet the requirements for gift splitting (married, U.S. citizens or residents, consent to gift splitting, etc.).

2. Make the Gift:

   • Make the gift to the intended recipient. It doesn’t matter which spouse actually makes the gift; as long as the couple elects to use gift splitting, it will be treated as if each spouse made half of the gift.

3. File Form 709:

   • File Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) to report the gift.
   • Both spouses must sign Form 709 to indicate their consent to gift splitting.
   • On Form 709, you will indicate that you are electing to split the gift with your spouse and provide information about your spouse.

4. Keep Detailed Records:

   • Keep detailed records of the gift, including the date, amount, and recipient. This documentation will be helpful if you ever need to substantiate the gift.

Example Scenarios

1. Helping with College Expenses:

   • John and Mary want to help their granddaughter pay for college. In 2024, they decide to give her $30,000.
   • Using gift splitting, John and Mary can each treat the gift as if they gave $15,000. Since this is below the annual exclusion amount of $18,000 per person, they do not need to report the gift.

2. Assisting with a Down Payment:

   • Tom and Lisa want to help their son with a down payment on a house. In 2024, they decide to give him $36,000.
   • Using gift splitting, Tom and Lisa can each treat the gift as if they gave $18,000. Since this is exactly the annual exclusion amount, they do not need to report the gift.

3. Making a Larger Gift:

   • David and Susan want to give their daughter $50,000 to help her start a business. In 2024, they use gift splitting.
   • Each spouse is treated as giving $25,000. After applying the annual exclusion of $18,000, each spouse has a taxable gift of $7,000.
   • David and Susan must each file Form 709 to report the gift. The $7,000 taxable gift will be counted against each spouse’s lifetime gift and estate tax exclusion.

Potential Pitfalls to Avoid

• Failing to Obtain Consent:

  • Both spouses must consent to gift splitting. If one spouse does not consent, gift splitting is not allowed.

• Not Filing Form 709:

  • If the gift exceeds the annual exclusion amount, you must file Form 709 to report the gift and elect gift splitting. Failing to file Form 709 can result in penalties.

• Making Gifts of Future Interests:

  • If one spouse makes