Give More, Pay Less: Maximize the 2024 Gift Tax Exemption Before Year-End

Whether you’re looking to help loved ones, reduce your taxable estate, or support a favorite cause, the annual gift tax exemption and lifetime gift tax exemption offer powerful tools to accomplish these goals. But with the December 31 deadline approaching, acting now is crucial to lock in 2024’s tax-saving opportunities.

The IRS allows taxpayers to gift up to $17,000 per recipient annually without incurring gift tax or reducing their lifetime exemption. Married couples can effectively double this amount by “splitting gifts,” allowing $34,000 per recipient tax-free. Gifting now is a straightforward way to reduce the size of your taxable estate while sharing your wealth with loved ones during your lifetime. Gifts exceeding the annual limit count toward your lifetime gift tax exemption, currently set at $12.92 million. Using this exemption strategically can also reduce estate tax liabilities under Form 706, which calculates federal estate taxes.

Foreign gifting requires special attention. For example, gifts to foreign spouses have a higher annual exclusion of $175,000 in 2024, offering significant tax advantages. This provision is particularly helpful for non-U.S. citizen spouses, allowing for larger transfers without eroding your lifetime exemption. Additionally, gifting to foreign individuals can be an effective way to minimize future estate taxes, but it’s essential to meet reporting requirements, such as filing IRS Form 3520, to avoid penalties. Careful planning ensures that these gifts achieve both your financial and compliance goals.

One often-overlooked strategy is making direct payments for tuition or medical expenses. Payments made directly to an educational institution or healthcare provider are entirely excluded from gift tax calculations, allowing you to support loved ones without affecting your annual or lifetime exemptions. Similarly, contributions to 529 college savings plans qualify for the annual exclusion, and you can “superfund” the account by contributing up to five years’ worth of annual exclusions at once. For example, in 2024, you could contribute $85,000 per recipient—or $170,000 if married—without triggering gift taxes.

Gifting appreciated assets, such as stocks or real estate, can also provide tax benefits. The recipient assumes your cost basis for these assets, potentially lowering their capital gains tax when they sell. This strategy is particularly effective when gifting to family members in lower tax brackets, maximizing the overall tax efficiency of your estate plan.

Beyond annual gifting, reviewing your lifetime gift and estate tax exemption is critical. The current $12.92 million exemption is at historic highs, but it’s set to drop significantly in 2026 unless Congress acts. Making larger gifts now locks in this generous limit and reduces the taxable items in your estate, helping to avoid future tax liabilities. For those with substantial estates, gifting assets likely to appreciate can further shield your family from unnecessary estate taxes.

While gifting offers substantial tax advantages, it’s important to avoid common mistakes. Exceeding the annual exclusion without proper planning can unnecessarily reduce your lifetime exemption, and failing to file required forms like IRS Form 709 or Form 3520 for foreign gifts can lead to penalties. Additionally, state tax laws may differ from federal rules, so understanding your local regulations is essential.

Year-end gifting isn’t just a financial strategy; it’s an opportunity to make a meaningful difference in the lives of your loved ones while protecting your legacy. If you need assistance navigating these complex rules or developing a customized gifting strategy, contact us at info@mkhstaxgroup.com.