End-Of-Year Gifting Strategies

Dear Friends,

The season of giving is here, which means the annual exclusion deadline for tax-free gifts is fast approaching. The common question I get asked is, “What can I gift tax-free before the year comes to a close?”. It can be difficult to distinguish between what is and isn’t allowed when it comes to tax-free gifting. Let’s simplify it.

What is tax-free gifting?

The “annual exclusion” is the IRS term that references the amount that you can gift tax-free to a single person. According to the IRS, one can currently gift up to $16,000, tax-free, to as many people as one likes. For example, a client can make a gift to their child, and their child’s spouse and to each of their children, tax-free, up to the amount of $16,000 each. For the gifts to qualify as an annual exclusion gift in 2022, it must be made by December 31, 2022.

To ensure the annual exclusion gift is completed in the year it’s made, the recipient of the gift needs to deposit the gift no later than December 31, 2022. If you are considering writing a check, please make sure there is enough time for the recipient to cash it before the end of the year, otherwise, it will count toward 2023 instead.

One important thing to note is that the annual exclusion clock starts all over again on January 1, 2023 and is set to increase to $17,000 per gift. We encourage our clients who gift regularly to keep a record of their annual exclusion gifts each year and file it with their estate planning documents

Can I gift tax-free to a spouse?

Generally, gifts to spouses are exempt from tax and an unlimited amount of gifts can be made between spouses (thank you honey)! But note, if your client’s spouse is a non-US citizen, then you should be aware that the rules are different for them and there will be gifting limits they must follow.

Let’s talk details.

If the value of the gift is easily ascertainable (i.e., cash, publicly-traded shares of stocks, bonds, etc.) then there’s no need to do anything else. In situations where a client wants to gift shares of a private company or other hard to value assets, then it’s best to obtain an appraisal and file a gift tax return with the information to avoid tax audits later, even though the gift is tax-free.

Are there any exceptions?

There are some gifts that remain tax-free even though they exceed the annual exclusion amount. These gifts include the following:

●     A gift to cover someone’s education tuition, if paid directly to the educational institution. Keep in mind this does not cover gifts to cover room and board, books or supplies.

●      Gifts to cover someone’s medical expenses, if paid directly to the medical facility

●      A gift to a political organization

The gift tax also doesn’t apply when giving to certain tax-exempt organizations:

●      A 501(c)(4) social welfare organization or civic league

●      A 501(c)(5) labor, agricultural, or horticultural organization

●      A 501(c)(6) business association, such as a chamber of commerce

What happens if a gift is over the limit?

If any gifts to any individual exceed the annual exclusion, the donor will have to file a gift tax return and potentially pay a gift tax on the value of the gifts that exceeds the lifetime gift exemption. To avoid this, keep gift amounts under the maximum of $16,000.

The current lifetime amount that can be gifted tax free (not including annual exclusion gifts) is $12.06M. The gift and estate tax exemption is a combined exclusion of $12.06M so that if you gift up to that amount, you will have no exclusion left for estate tax purposes. Finally, note that the $12.06M exemption is set to sunset in 2025 and may be changed by Congress before then.

If you would like to discuss gifting strategies beyond the annual exclusion amount or would like to strategically gift into trusts, then please let us know and we would be glad to meet with you to discuss further. Please email Chase ([email protected]) to schedule an appointment.

Sharing the wealth during the holiday season is admirable, just ensure you are following best practice when it comes to tax-free gifts.


Anna Byrne is the founder of Eckert Byrne LLC and an estate planning attorney with over 25 years of experience creating estate plans that encompass more than just the transfer of tangible assets. Anna authored the recently published book,  The Inheritor’s Guide is the most current book providing legal, financial, and emotional advice for adult children managing their parents’ estate.