The start of a new year often inspires reflections on the past, with renewed effort to apply any lessons we've learned to try to anticipate
2025 Gifting Opportunities
Published Date : January 29, 2025
The start of a new year is a great time to revisit on your existing financial plan and to determine if there are opportunities to make changes. For example, with the rise in the S&P 500 over the last couple of years, you may find yourself in a position to be more generous with your portfolio. Instead of waiting until you pass away, there are benefits of gifting during your lifetime, but you need to understand the tax implications and the impact on your cash flow associated with these decisions.
The gift tax is a federal tax that applies to gifts made to individuals. The amount of the tax presently ranges from 18-40%, based on the value of the gift. There are specific circumstances whereby the grantor can avoid the additional burden of taxation. Every year, the IRS announces updates to these gifting thresholds. Below is a brief summary of some of the most notable revisions as of 2025.
The lifetime gift tax exemption is the amount of money or assets that the government permits you to give away over the course of your lifetime without having to pay a federal gift tax. This limit is adjusted each year based on that year’s rate of inflation. For 2025, the lifetime gift tax exemption is $13.99 million per person. Importantly, this exemption is scheduled to reset to $5,000,000 indexed to inflation on January 1, 2026, unless Congress acts prior to that date. If your estate is over the lifetime exemption amount, proactively transferring wealth during your lifetime could be a strategy to help reduce estate taxes.
Certain gifts are always exempt from taxes. For example, you can cover someone’s medical expenses if paid directly to the medical facility or pay tuition directly to an educational institution and these payments would not be subject to gift tax. Also, any gifts to charities approved by the IRS are not considered taxable gifts.
In addition to the lifetime gift tax exemption, the federal annual gift exclusion is the amount that an individual can transfer to another person without paying gift tax. For 2025, the amount has increased from $18,000 to $19,000. If you gift $19,000 or less to individuals this year, you do not need to file a gift tax return, nor is it included in the lifetime gift tax exemption.
Another option available for gifting is to consider using part of your required minimum distribution (RMD) from your IRA to gift to charity. Making a direct gift from your IRA to charity is called a qualified charitable distribution (QCD). It has the double benefit of satisfying your philanthropic goals while also reducing your income taxes because the QCD amount is not included in your taxable income. The maximum annual QCD amount for 2025 is $108,000. While unlike other charitable donations, the QCD does not offer a tax deduction.
Transferring wealth during your lifetime offers you the personal satisfaction of witnessing loved ones enjoy your generosity. Before making any gifts, it is essential to understand the impact of removing those assets and their associated income streams from your balance sheet. Can you preserve your lifestyle without these assets? Have you created a long-term cash flow analysis to understand the impact on your spending?
Deciding how much and which assets to give away should be part of a comprehensive financial plan. For example, if you gift appreciated stock to loved ones during your lifetime, these assets do not receive a stepped-up basis as they would upon death. Reach out to your Sand Hill Wealth Manager who can assist you in creating a comprehensive long-term plan to assure that your goals are attainable.
Source: IRS
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