Spring has sprung and brought with it anniversaries, graduations, weddings, spring birthdays and seasonal holidays, all of which require a gift of sorts, and often times these gifts are monetary. When you make a substantial gift to anyone of cash or property, the IRS takes notice. But the good news is, gifts are excluded from taxable income for the recipients, and there may be an exclusion available for the gift giver as well. The annual gift tax exclusion is a win-win for taxpayers, allowing you to share your wealth during your lifetime and reduce your taxable estate. This is peak time for special occasions and the following tips can help you make informed decisions about tax-free gifts of cash or assets.
What is the annual gift tax exclusion?
The annual gift tax exclusion allows individuals to give a specific amount, per person, per year, without having to pay taxes or file a gift tax return. For 2025, this amount is set at $19,000. So this means if you have multiple graduates in the family or multiple weddings to attend, you are allowed to give each individual (or couple) up to $19,000. And if you are married, each spouse can give $19,000 which totals to $38,000.
There is also a “lifetime” gift tax exemption. If someone chooses to gift above the annual exclusion to a recipient, a portion of the gift giver’s lifetime gift tax exemption will be recorded as used. In 2025, the lifetime gift tax exemption is $13.99 Million dollars. A gift tax return will be due to be filed on April 15th the following year to report the gift, and track the amount of the lifetime exemption that has been used. Again, this is only triggered if the gift amount exceeds the annual exclusion.
When do gifts count as taxable income?
According to U.S. tax laws, gifts given in a personal context, like gifts given for weddings or graduations are excluded from taxable income for the recipients. This means that the value of cash gifts, checks, assets or physical items given to an individual or couple does not need to be reported on their tax return. If you are the giver of a wedding gift, keep in mind the annual gift tax exclusion outlined above.
If you are giving a non-cash gift, like household goods, furniture or other registry items, the IRS determines their worth based on the fair market value. After the fair market value is determined, the annual gift tax exclusion applies.
Additional gift ideas for that special graduate or adult child, or grandbaby!
There are a few “out-of-the ordinary” gift options where the annual gift tax exclusion and the lifetime exemption still apply. Cash is always popular of course, but if you are looking for something a bit more meaningful in the long term, consider a contribution to an IRA, picking up student loan payments, a down payment on a house or car, or stashing some money away into a 529 savings plan for them.
Special note!
For our New York clients, beware that NYS will “claw back” a gift if it is given within three years of the giver’s death. So if someone gives a gift, and then passes less than three years later, the given gift will be returned to the giver’s estate for the purpose of determining if there is a New York estate tax owed. It is also important to note that this will only apply if the given gift will place the giver’s total estate amount over the NYS exemption, which is $7.16 Million dollars in 2025. If the total estate is less than this amount, no tax will be owed.
Reach Out to Us: Your financial gift can make a special occasion even more special! Our TFG accounting professionals can help you navigate the rules and regulations of tax free gift giving, and make sure that everything is done properly. Contact us with questions at 855-542-7537, or cpa@fuoco.com.
