The holiday season often brings a spirit of giving, especially when it comes to family members and loved ones. Many people choose this time of year to make financial gifts, but before making large gifts, it's essential to understand the tax implications at both federal and state levels. Here's a quick guide to how holiday gifting can fit into your estate plan—and what to consider from a tax perspective.
1. The Annual Federal Gift Tax Exclusion
The IRS allows you to gift up to a certain amount each year without any tax implications. For 2024, this annual exclusion amount is $18,000 per recipient. This means that you can give up to $18,000 to as many people as you wish without paying federal gift tax or filing a gift tax return.
Example:
If you give $18,000 each to your five adult children, you can gift a total of $90,000 without triggering any gift tax or filing requirements. And if you're married, you and your spouse can “split” gifts, effectively doubling the exclusion to $34,000 per recipient.
2. Lifetime Gift Tax Exemption
For larger gifts that exceed the annual exclusion, there's the lifetime gift tax exemption. In 2024, this exemption stands at $13.61 million per individual (though this amount is currently subject to decrease in 2026 due to a tax law sunset provision). This means you can gift up to this amount during your lifetime without paying federal gift taxes, though gifts over the annual exclusion will reduce your estate tax exemption.
Important Note: Even if you don't owe federal gift tax, you still need to file a gift tax return (IRS Form 709) if you make gifts over the annual exclusion amount.
3. Gifting Rules in Ohio
Unlike some other states, Ohio does not have a state-level gift tax. This means you won't owe additional state taxes on your holiday gifts. However, if you're making significant gifts, it's worth considering how they impact your estate and any potential future Ohio estate tax law changes that may occur.
4. Using Gifts to Lower Estate Tax
Gifting can be a strategic tool to reduce the size of your taxable estate, potentially lowering estate taxes for larger estates. For families with estates valued above the federal exemption (currently $12.92 million per individual), annual holiday gifts may help reduce the taxable estate while allowing family members to enjoy a portion of their inheritance sooner.
5. Gifts for Medical and Educational Expenses
The IRS offers an additional exclusion for gifts made directly to healthcare providers or educational institutions for the benefit of someone else. These payments don't count toward the $17,000 annual limit and don't require you to file a gift tax return. This means you could pay tuition or medical bills for loved ones, and these gifts won't reduce your lifetime exemption.
Example:
If you pay your grandchild's $20,000 college tuition directly to the school, you can still give them $17,000 under the annual exclusion limit without tax consequences.
6. Charitable Gifting
Gifting to a qualified charity is another tax-advantageous way to give during the holidays. Charitable contributions are generally tax-deductible if you itemize your deductions. You might also consider a donor-advised fund if you wish to make a larger charitable gift that supports multiple organizations over time.
7. Consider Your Long-Term Estate Plan
Before making significant gifts, think about how these gifts align with your long-term estate plan. Consider whether gifting will impact the inheritance you intend to leave for your heirs, and consult with an estate planning attorney to ensure your gifts support your overall financial goals.
In Summary
This holiday season, remember that gifting can be a meaningful way to share your wealth while potentially reducing future estate taxes. However, understanding federal and Ohio tax rules—and keeping good records of your gifts—is key to a tax-smart gifting strategy. If you have questions about how to incorporate gifting into your estate plan, reach out to us at (614) 420-2038. We're here to help you make informed choices and enjoy a season of giving with peace of mind.
Disclaimer: The information provided in this blog is for educational purposes only and does not constitute legal advice. Every situation is unique, and laws may vary based on jurisdiction. Please consult a qualified attorney for personalized advice regarding your specific circumstances.
