The Annual Gift Tax Exclusion: The Power of Early Gifting

Many clients may be scrambling at the end of the year when it comes to certain tax related issues. But when it comes to annual gifting, acting earlier in the year may be more beneficial for a couple of reasons. The current annual gift tax exclusion amount is $15,000 per donee per individual, meaning a married couple may gift a single donee $30,000 with no gift tax consequences.

If you gift an asset with appreciation potential, such as stock or investment property, to an individual or trust, you are able to remove the appreciation and income from your tax base for the year of the gift as well as the following years. You also allow the recipient to benefit from the growth of the gift for the rest of that year.

However, the benefit to you of annual tax free gifts comes at the cost of the recipient receiving the asset with your cost basis. You may need to consider the recipient’s tax liability for the gift. Annual exclusion gifting is most advantageous for individuals and married couples who expect to have a taxable estate for federal or state estate tax purposes, and with the passage of the Tax Cuts and Jobs Act in 2017, the threshold has more than doubled.

See The Annual Gift Tax Exclusion: The Power of Early, Wealth.NorthernTrust, January 2020.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.