How Much Can You Gift to Your Children Tax Free?

In the United States, gifting to your children is a common way to transfer wealth while minimizing taxes. However, there are specific rules governing how much you can gift tax-free, primarily related to the annual gift tax exclusion and the lifetime gift tax exemption. Understanding these rules can help you navigate gifting strategies without triggering gift taxes.

For a St. Petersburg estate planning lawyer, gifts to children are an important part of an overall estate plan. Gifts allow givers to see their beneficiaries enjoy their gifts and participate with them in the process. Furthermore, gifts lower the value of an estate, making probate or trust transfers much less complex when the time comes.

Annual Gift Tax Exclusion

Each year, the IRS allows you to gift a certain amount to individuals, including your children, without incurring gift tax or having to file a gift tax return. For 2023, this annual exclusion is $17,000 per recipient. Generally, this amount is a flat amount that’s not subject to any exclusions or exceptions. Furthermore, if you are married, both you and your spouse can each give $17,000, which means you and your spouse together can gift up to $34,000 per year per child without triggering any gift tax or financial penalty.

For example, if you have three children, you and your spouse can each give $17,000 to each child. This would total $102,000 in gifts for the year, all of which would be tax-free (as long as you stay within the annual exclusion limit).

It’s important to note that the annual exclusion is per recipient, so each child is considered an individual recipient. This allows for significant tax-free gifting, especially if you have multiple children.

Lifetime Gift Tax Exemption

This exemption allows you to make larger gifts over your lifetime without paying gift taxes. As of 2023, the lifetime exemption is $12.92 million per individual. This exemption is cumulative, meaning that all the gifts you give during your lifetime that exceed the annual exclusion count toward this lifetime total.

For example, if you gave $50,000 to a child in 2023 (which is $33,000 above the $17,000 annual exclusion), you would use up $33,000 of your lifetime exemption. As long as your total lifetime gifts, including the $50k gift, stay below the $12.92 million threshold, you won’t owe any gift taxes. However, if your lifetime gifts exceed this amount, you would be subject to gift taxes on the excess.

It’s important to remember that the lifetime exemption also applies to your estate, meaning that both the gifts you give during your lifetime and the value of your estate at the time of your death count toward this total. Therefore, if you make substantial gifts during your lifetime, it could reduce the exemption available when you pass away.

Gifts for Education and Medical Expenses

Gifts made directly to educational institutions for tuition and medical providers for medical expenses. If you pay a child’s tuition directly to the school or their medical bills directly to the healthcare provider, these payments do not count toward the gift tax rules. These gifts are completely tax-free, regardless of the amount.

Usually, the “gift” must be a direct payment to a third party. If a St. Petersburg estate planning lawyer writes the check, that’s even better.

Gift Tax Return

If you make gifts that exceed the annual exclusion limit in a given year, you are required to file a gift tax return (Form 709) with the IRS. This form reports the gifts made over the exclusion limit and tracks how much of your lifetime exemption has been used. While filing the return is required, you typically won’t owe any taxes unless your total lifetime gifts exceed the exemption amount.

Work With a Dedicated Sarasota County Lawyer

Proper estate administration is just as important as proper trust creation. For a confidential consultation with an experienced elder law attorney in Sarasota, contact Drude Tomori Law. We routinely handle matters throughout the Sunshine State.

Source:

irs.gov/newsroom/estate-and-gift-tax-faqs