As you or your family members approach retirement, it’s essential to understand the IRS gift-giving rules. With this understanding, there are opportunities for leveraging this tax law without creating a tax problem.

IRS gift-giving rules

1. You may give up to $19,000 to any individual (donee) in 2025 and avoid any gift tax filing requirements.
2. If married, you and your spouse may transfer up to $38,000 per donee.
3. If you provide a gift to your spouse who is not a U.S. citizen, the annual exclusion amount is $190,000.
4. Gifts in excess of this annual amount trigger the need to file a gift tax form with your individual tax return. The excess gift amounts are then added to your estate for potential estate taxation.
5. The estate tax currently has a maximum rate of 40%, and the donor of the gift (or their estate) is responsible for paying the tax.

Leveraging gift rules

Remember, you can transfer up to $19,000 ($38,000 if married) to anyone you wish each year tax-free. Additionally, most states also adhere to this federal law. So if you wish to move assets to loved ones without the burden of future taxation, consider the following ideas.

• Make periodic gifts. Remember, the gift-giving limit is per calendar year. To take full advantage of this tax-free transfer, consider starting now and making periodic payments. Every year you miss out on this limit, which reduces the amount a couple can transfer tax-free to each donee by up to $38,000.
• Fund college savings. Consider donating money to 529 college savings plans for children and grandchildren. This can be done with automated deposits into the account. You or your grandchild’s parent could establish the account.
• Pay medical and education bills directly. If you are concerned about exceeding the annual gift limit to a single person, consider paying bills directly. Examples of this strategy might be paying medical bills directly to a hospital or directly paying college bills for a loved one.
• Donate property. Gifts can include property as well as cash. You can donate investments or other physical property. If you do this, document the property’s fair market value at the time of transfer. The IRS requires this documentation to ensure the value of the property transferred is consistently valued by you and the person receiving the gift.
• Help build a down payment. Often, children burdened with college debt cannot afford the down payment required to buy their first home. You can help by contributing to a down payment through gift transfers.
• Leave a cushion. Remember the annual limit. If you provide a gift to an individual for the maximum allowable amount, you may not provide any other gifts to that person during the year, or the event would be deemed excess gift-giving and require filing a gift tax form.

Keeping perspective

Understanding and leveraging the annual gift tax rules can create tremendous tax savings. But this strategy should be in conjunction with understanding your personal financial needs. Providing gifts of funds that you might later need for your own retirement can be problematic. It’s best to review your gift plans before taking action. Contact our RRBB advisors if you have any questions or if you’re ready to take the next step.