Year-End Gifts and the Gift Tax Annual Exclusion

Gift Tax

Written by Jay Kramer

November 9, 2022

With the holidays and year-end approaching, you might be considering making gifts of stock or cash to family members and loved ones. By using your annual exclusion, those gifts — within generous limits — can reduce the size of your taxable estate. For 2022, the annual gift exclusion is $16,000.

This covers gifts you make to each recipient each year. Therefore, a taxpayer with three children can transfer a total of $48,000 to them every year free of federal gift taxes. If these are the only gifts made in a year, there’s no need to file a federal gift tax return. If an annual gift exceeds $16,000 per person, only the amount that exceeds $16,000 is a taxable gift. In addition, even taxable gifts may result in no gift tax liability thanks to the unified credit.

Gifts made to a spouse aren’t covered here, because these gifts are free of gift tax under separate marital deduction rules.

Married Taxpayers and Gift Splitting

If you’re married, a gift made during a year can be treated as split between you and your spouse, even if only one of you gives the gift. That means, by gift splitting, a married couple can use their two exclusions to give a recipient up to $32,000 a year. For example, a married couple with three married children can transfer a total of $192,000 each year to their children and the children’s spouses ($32,000 for each of six recipients).

Because more than $16,000 is being transferred by a spouse, a gift tax return (or returns) will have to be filed, even if the $32,000 exclusion covers total gifts. If gift splitting is involved, both spouses must consent to it and that consent should be indicated on each gift tax return (or returns) that each spouse files.

Have you made gifts to one individual that exceed $16,000 within a year? If so, we can prepare a gift tax return (or returns) for you.

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Jay Kramer
I joined Hawkins Ash CPAs as a partner in 2008. My practice focuses on tax services for small businesses, S corporations, limited liability companies and individuals.

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