On Money & More – November 2023

It’s that time of year when Jacksonville lights up in all its holiday splendor. And as we approach year-end, many of us will be thinking about gifts. Perhaps for you this means buying gifts at one of our California Street boutiques. But for some, it may also mean giving substantially from your estate. If so, there are some sound financial planning reasons for giving away assets. After all, a gift once given is no longer taxable as part of your estate and these gifts often benefit from the “gift tax exclusion.”

Gift taxes can often be a source of confusion for many people. The gift tax is a federal tax that applies when property such as cash, stocks, cars, homes, etc., is gifted from one person to another. Not all gifts are taxable, and even taxable gifts do not necessarily result in taxes due. Taxable gifts require the donor to file a gift tax return, which is then used by the IRS to track the total amount gifted over the donor’s lifetime. Federal gift tax is due unless it is claimed against the donor’s lifetime exemption amount, which is currently $12.92M. As with income tax rates that were reduced during the Trump administration, this higher exemption amount is set to sunset at the end of 2025, dropping to an estimated $5.49M per individual.

The IRS’s general rule is every gift is a taxable gift unless it meets one of the following exceptions:

  1. Gifts that fall below the annual exclusion amount ($17,000 for 2023)
  2. Gifts to a spouse
  3. Gifts to political or qualified charitable organizations
  4. Tuition or medical expenses paid for someone else, and made directly to the service provider

Under the annual exclusion exception, an individual can gift up to $17,000 to anyone without needing to report it on their tax return. Furthermore, this exclusion applies to each recipient, meaning an individual can make $17,000 gifts to as many recipients as they wish, and the total amount of the gifts will still be considered non-taxable. For married couples, each spouse is entitled to the annual exclusion amount, which means a married couple has a total annual exclusion amount of $34,000 per gift recipient.

Additionally, an individual can turbocharge their gifting strategy by making a lump-sum contribution of up to five times the annual gift tax exclusion (currently $85,000) amount to a 529 plan and treat it as if it were spread over five years. However, any additional gifts to the same beneficiary will be considered taxable within this five-year period.

Gifting can be simple, but as you can see it can also be complicated. And while charity and devotion may be your primary motivation for your generosity, the tax benefits are also worth your consideration. If you have questions about how these rules may apply to you, feel free to give us a call. Many have said, “It is better to give than to receive,” and for those thinking about gifting this holiday season we hope this rings true more than ever.

All opinions and data included in this commentary are as of October 11, 2023 and are subject to change without notice. The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice including the asset allocation provided. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.