We often get questions from our clients on gifting and its potential tax implications. A gift of money or property is not deductible on your personal income tax return nor does the recipient report the gift as income on their tax return. Gifts, however, may be subject to the federal gift tax. The gift tax is a tax on transfers of money or property to other people while getting nothing (or less than full value) in return.

Few people actually owe gift tax due to the annual gift tax exclusion and currently high lifetime exemption. For 2022, the annual gift tax exclusion was $16,000, and the exclusion will be raised to $17,000 for 2023. The exclusion amount is per recipient which means that a married couple can give a married child and spouse up to $68,000 in 2023 without reducing their lifetime estate exemption. Only gifts over the annual exclusion threshold must be reported on a gift tax return, Form 709.

A gift over the threshold amount simply uses a piece of your lifetime estate tax exemption. With the estate tax exemption at $12,920,000 per person in 2023, most taxpayers do not need to worry about paying estate and gift taxes. Keep your eye on the calendar though – beginning in 2026, the lifetime exemption is set to revert to 50% of current levels.

The general rule is that any gift is a taxable gift; however, there are many exceptions to this rule. Generally, the following are not considered taxable gifts:

  • Gifts that are not more than the annual exclusion.
  • Gifts consisting of direct payments to providers for medical and education expenses.
  • Gifts to your spouse.
  • Gifts to a political organization.

Since tax and gifting implications vary for each individual, please reach out to your tax advisor at Ketel Thorstenson to discuss your situation.