As we enter tax season and many of our clients are working with their tax professionals to finalize their taxes for 2023, we want to remind everyone that with the change of calendars comes new tax considerations. Every year, the IRS adjusts amounts exempt from federal estate and gift taxes to consider inflation. Also, Congress sometimes makes laws with provisions that expire.
Gift and estate taxes apply, in certain cases, to large gifts made by a person while living or by his or her estate after the person’s death. One critical purpose of financial planning is minimizing the impact of gift and estate taxes.
Knowing these exemptions and provisions is important when establishing gifting strategies to support your loved ones now or in the future. The gift tax exclusions—both annual and lifetime exclusions—are important tools that we can use when helping you to create a plan that cares for your family while minimizing any unwelcome future tax bills.
Here’s what you need to know about the 2024 gift and estate tax exemptions.
What are estate and gift taxes?
Estate taxes are assessed on the value of a deceased individual’s estate before it is given to the person’s heirs, whereas the gift tax is a tax on large gifts given while a person is still alive.
For those with a large estate, gifting to your children and grandchildren during your lifetime can help to limit your estate’s tax burden at the time of your passing. This gift tax isn’t limited to cash gifts; it can include other high-value gifts like stocks, a house or a car.
Many Americans will never have to pay gift or estate taxes to the federal government, due to a number of exemptions. Certain gifts are totally exempt from the gift tax. These tax-free gifts include:
- Charitable donations
- Medical expenses
- Political contributions
- Gifts to spouses who are US citizens
- Gifts to dependents
- Tuition and educational fees
In addition to these exemptions, many Americans take advantage of the annual gift tax exclusion and the lifetime gift and estate tax exemption to help limit their estate tax burden down the line. These exemptions are updated annually based on several factors including changing legislation and inflation considerations.
Annual gift tax exclusion
In 2024, you can give an unlimited amount of people a maximum of $18,000 each (or, alternatively, married couples can give a maximum of $36,000) in a single year without triggering the gift tax. If your gift exceeds $18,000 to any one person during a calendar year, you are required to report it on a gift tax return.
Although gifts to spouses are unlimited if you and your spouse are both US citizens, in a situation where your spouse is a non-US citizen, the annual limit on tax exempt giving is $185,000 in 2024. Any gift to your spouse above that limit would count towards the lifetime gift and estate tax exemption.
Lifetime gift and estate tax exemption
Over the course of your life, or as a part of your estate, the IRS allows a person to give away a certain amount of assets without triggering the gift or estate tax. If you give more than $18,000 to someone in one year, the amount above the annual gift tax exclusion is taken from your lifetime gift and estate tax exemption. In 2024, the IRS expanded the lifetime gift and estate tax exemption to $13.61 million for individuals and $27.22 million for married couples.
When thinking about the lifetime gift and estate tax exemption, people should keep in mind that at the start of 2026 this amount will revert back to the prior exemption amount of approximately $7 million—unless Congress takes action sooner. Some clients may want to consider taking advantage of the higher exemption amount in the meantime; especially as there could be additional changes to the lifetime gift and estate tax exemption, depending on the results of the 2024 election.
Part of a comprehensive plan
We regularly work with clients to help optimize their gifting strategies, not only with respect to taxes but to best fulfill the purposes closest to their hearts. Our approach is to focus on estate and gift taxes in a highly individualized manner as an inherent part of the financial planning process. If you are considering making financial gifts this year, our advisors are available and ready to work with you to incorporate that giving into your financial plan.
Further reading:
This NerdWallet article covers some of the same ground we have here, but dives deeper into how the gift tax works and examples of what can trigger a gift tax return.
This SmartAsset article includes a handy reference table for calculating gift taxes.
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