Annual Exclusion and Gift Tax Exemption

Someone insisted to me that gift limits haven’t changed since 2001. What? No. For 2025, it’s $19,000 per person per year (see SNB Wealth, May 2024). Married couples get $38,000 per kid if they want. I get texts every year, “Does my dog count?” No, unless the IRS starts taxing pets.

Here’s a quick table:

Go over the limit? That chips away at your lifetime exemption (over $13 million for 2025, but who knows, Congress could change it tomorrow). And no, you can’t deduct gifts unless it’s to charity. Had a client who thought giving her niece a car was a tax write-off. Not even close.

Gift Tax Return Filing Tips

Half my friends claim they’ve never even heard of IRS Form 709. Not because it’s rare—they just ignore it. If you give more than the exclusion (or future interests, which I still don’t really get), you file Form 709 by April 15. Don’t skip it—penalties are nasty. Most people get tripped up on “split gifts” with spouses or tracking gifts over years. IRS wants details, not ballpark guesses.

Oh, and Form 709 isn’t electronic. Paper only. I end up mailing a stack every year. Keep a spreadsheet, because the IRS wants every detail—who, what, how much, relationship. People forget, but the lifetime exemption builds up forever, and the IRS doesn’t forget. No software helps, either. My CPA says: check everything three times if a trust or entity is involved, and don’t wait until April. Your memory will betray you.

Maximizing Savings With Financial Gifts

Half my family thinks “giving stocks” is like betting on horses. If only the IRS showed up at Churchill Downs, maybe people would pay attention. The tax consequences are sneaky—capital gains, cost basis, which investments to move—it’s a mess if you blink.

Selecting High-Impact Financial Gifts

Every family gathering, someone asks if cash is the “tax-smart” gift, and you can see every CFP® cringe. Gifting cash? Easy, no income tax for the recipient, but if you’re hoping for generational wealth transfer, it’s kind of boring.

Now, giving stock or mutual funds? That’s where things get interesting. When I gave appreciated shares to my nephew, his lower tax bracket meant he paid less on gains—assuming he sold right away. Wait too long, and the market could tank. Direct 529 contributions for college? Federal tax-free growth if you follow the rules, but the paperwork is a nightmare. Advisors always say: nobody regrets funding education, but everyone regrets ignoring cost basis.

Minimizing Capital Gains Taxes Through Gift Choices

I watched someone gift shares bought in the 1980s—huge growth, but “tax efficiency” goes out the window if the recipient sells right away. When you give appreciated stock, the gain moves with it, but the recipient’s usually lower tax rate can save a ton compared to the donor’s bracket (Fidelity has examples if you care).

But this only works if the recipient doesn’t flip it immediately. There’s always someone who ignores the holding period and then freaks out about the 20% tax. It’s not zero, but it’s better than some rates. Basically: pick assets that grew a lot, gift smart, and maybe include your tax advisor’s number in the card. Like packing lunch—protein is good, but don’t forget fiber. In finance, it’s holding period and tax bracket, not just the asset, that matter.

Cost Basis Considerations When Gifting Assets

Nobody listens, but cost basis is the sneaky killer. When you give shares, your original cost basis and holding period go with them. If I bought 50 shares at $5 and gift them at $150, my cousin gets that $5 basis. Sell right away? He pays tax on $145 per share. Wait, and who knows what the market does.

Morgan Stanley has fancy charts, but my uncle decided to “teach us a lesson” and gifted shares from before Microsoft existed. Nobody checked his cost basis. The recipient sold and got slammed with taxes. No one explains this at Thanksgiving. It’s not just theory—make sure the recipient knows their cost basis and what that means. I’ve lost count of the “why is my tax so high?” calls. It never gets less awkward.

Gifting Strategies for Education and Medical Expenses

Here’s a thing that still confuses me: apparently the IRS couldn’t care less if I Venmo my niece $300 for her “art supplies,” but if I try to pay her tuition or cover my dad’s new knee, suddenly it’s an obstacle course of rules and forms. There’s this oddball loophole—nobody at family dinner ever brings it up, probably because it’s boring—that lets you skip the gift tax if you pay the school or doctor directly. No 529 plan required. Kind of wild, right? Every “savvy family finance” blog acts like 529s are the only way, but nope.

Paying Tuition Directly

I once wrote a check to my nephew for his dorm futon—yeah, that didn’t fly for gift tax exclusion. He still roasts my taste in furniture. The only payments that skate past the gift tax? Tuition. Paid straight to the school, not to the kid. Forget annual exclusion limits—they don’t matter here. IRS Pub 970, page 5, lays it out (after you dig through a bunch of government-speak).

Everyone and their dog keeps hyping 529 plans as the tax-smart move, but unless you’re wringing out those state deductions, sometimes it’s just easier to pay the tuition bill directly. Nobody ever mentions that there’s no annual cap on direct tuition payments. Estate attorney Judith S. McGrath (Estate Law Review, 2022) says, “Direct tuition payments can be unlimited in value and still tax-free, but must be paid to the institution, not the student.” Try explaining that without sounding like a walking IRS pamphlet. Books, rent, meal plans? Sorry, loophole doesn’t stretch that far. Learned that the hard way.

Covering Medical Expenses for Loved Ones

My cousin needed a dental implant last year (don’t ask, we don’t talk about it). If I pay the oral surgeon directly, IRS shrugs. No gift tax, no forms. Doesn’t matter if the bill is sky-high. But if I just hand my cousin a wad of cash marked “For surgery”—suddenly I’m brushing up against the annual gift limit. Why? Who knows.

“Qualified medical expenses” have a super narrow definition: treatments, doctors, insurance premiums in some cases, but don’t try to sneak in teeth whitening or Botox. I once called my CPA, who just said, “Pay the provider, keep the receipts, don’t overthink it.” 529 plans? Useless for this, they’re just for school. Doctors don’t care where the money comes from, but for estate planning, this trick can shrink your future taxable estate and make you look like a family MVP. Not that anyone ever thanks you.